Episode 50 – Social Security: understanding provisions for public employees
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Today we are continuing our discussion of Social Security benefits with Kirk. In this episode, we’ll be focusing on some unique provisions that can apply to governmental employees who have pension plans but didn’t participate in Social Security while contributing to those plans. So, to help us understand these rules, welcome back Kirk.
Kirk
Thank you. Good to be here today.
Seth
So, Kirk, Jenny’s intro I think is helpful on this topic because I think a lot of us think that everybody participates in Social Security. So, can you give us maybe a short, brief explanation of why some public employees don’t participate in Social Security?
Kirk
Certainly. And this kind of goes back, we’re going to take a little trip back in time here. So, [in the] 1930s, when they’re designing the Social Security program, a lot of government groups and agencies were not real keen on jumping into the program. A lot of, cities, state government said, hey, we already have a retirement program for our workers.
We’re not really excited about joining this federal program. And so, to get the law passed, they basically said, “Great, if you have a plan that you’re happy with, you have government employees that you’re taking care of; you do not have to enter into this program.” So, it was originally designed as a way to say, we’re not going to force other government agencies, whether they’re state agencies, city agencies, municipalities, other groups.
We’re not going to force you to pay into Social Security. You keep on doing what you’re doing. And so, it was a way to get this through Congress and get the Social Security law passed. And in reality, the number of government employees that don’t pay into Social Security has been dwindling over the years. More and more, state governments, city governments have said, yeah, this Social Security thing.
It’s kind of hung around. It’s a good thing. Let’s keep it. And we’re going to go ahead and have our employees pay into it. We may keep another pension program for them, but we’re going to, start paying into this Social Security thing. So today, the vast majority of people, probably about 96% of all workers do pay into Social Security.
It was kind of odd, but, up until 1984, federal employees did not pay into Social Security, which is kind of odd, because here’s a great government program, and government employees working for the federal government weren’t paying into it. So, it wasn’t until 1984 that all federal employees started paying into Social Security. And we began to slowly close out the old civil service program in favor of the federal employee retirement program.
Seth
Thanks. That’s very helpful context. We did a little bit of research in Washington state, somewhere around half of all police officers don’t participate in Social Security through their local governments. And the vast majority of firefighters don’t participate in Social Security. But when you go to other states, it’s really spread out, like the teachers in California don’t participate in Social Security.
And a lot of the public employees in Colorado don’t participate in Social Security because they have their governmental pension plans instead. So, we just want to provide that context before we jump into this additional discussion, since it might not apply to most of our listeners, but it does apply to a small group, and it is really important for those folks to be aware that it applies for them.
So good idea to check if you don’t know, check with your employer, see if you’re participating in Social Security and your state pension plan. So, one other piece of background information that’s going to be helpful as we go into this discussion is around spousal Social Security benefits. And so, Kirk, I’m just going to give you a kind of a semi hypothetical scenario of me and my wife both participating in Social Security, paying into Social Security.
When we retire, we’re both going to be eligible to collect our own Social Security benefits. But then when one of us dies, the surviving person may have the opportunity to collect a survivor Social Security benefit. So, Kirk, tell me if I got all of that right. And please feel free to add in any additional detail that’s important for spousal benefits.
Kirk
So just generally speaking about spousal benefits, I’ll ask you to elaborate on this question a little bit more.
Seth
Yeah.
Kirk
Are either you or your spouse, did you work for a government agency and not pay into Social Security while you worked there? Or, has all of your time period been where you worked at different agencies, and you did pay the Social Security.
Seth
That that’s a good question. In this scenario, we have both paid into Social Security and participated in our governmental pension plans, at the same time. So, we’ve always participated in Social Security.
Kirk
Very good, very good. Because if you had a situation where part of your pension or part of your time you worked at a government agency and you did not pay in Social Security, then two unique laws would come into effect, which I think we’ll be discussing a little bit later on. One is called the Windfall Elimination Provision, and the other one is called the Government Pension Offset.
So, in this situation for you and your spouse that’s not involved. So that’s a good thing. But we’ll talk about how a little bit later on about how those particular two laws could affect you. So, you are correct. Let’s say both you and your spouse have worked and paid into Social Security, and I’m going to be generous.
I’m going to give you $3,000 a month, and I’m going to give your spouse, let’s say, $2,800 per month. Pretty good work records. So, I’m a generous guy. I’ll give you that money. So now then, in life, neither one of you could file on each other’s records. We do have a special program called Spousal Benefits that guarantees that your Social Security payment would at least equal 50% of what your spouse would receive.
But individually, since both your records, one is $3000, one is $2800, you wouldn’t qualify for that. So now then, one of you passes away. So, this is the normal survivor’s situation that we see. Let’s, I’m going to say that you pass away, so you pass away and you are getting $3,000 per month, and your spouse is still living, and they were getting $2,800 per month.
What can now happen is your spouse will simply convert up to your $3,000. As long as your spouse is over their full retirement age, let’s say age 67, you’ve passed away. They now basically go from their $2,800 per month to $3000. So, the main thing I want to point out here, and this is a myth that some people have heard, you do not get both payments.
So, your surviving spouse isn’t going to continue to get their $2800 and your $3000. They simply get to convert up to the $3,000 payment. Now then same scenario. Now your spouse passes away, your spouse was getting $2800 and they pass away. There’s really no benefits for you to convert to. You’re already getting $3000. You’re already above what they were receiving. You simply continue to get your $3,000 a month payment.
Seth
That makes sense. That’s super helpful. Thank you. So now that we’ve established a little bit more about spousal benefits, Kirk, you already alluded to this a little bit that there are two provisions that we want to make sure our listeners are aware of and how their Social Security benefits and pension benefits can interact or impact each other. So, could you tell us a little bit about the Government Pension Offset provision that may affect those spousal benefits we talked about?
Kirk
Okay. So, two regulations that we’re going to be looking at here. And you really need to separate these two because they affect you in two very different ways. So, the Government Pension Offset only affects you if you are trying to claim spousal benefits on a living spouse, or if you’re trying to claim benefits on a deceased spouse’s record and you are receiving a pension from a government agency that you worked at and did not pay into Social Security, we call that a non-covered government pension.
So, let’s say you are a police officer. We’ll use that as an example. As you noted, a number of police officers that don’t pay in to Social Security. That’s true across the nation. And as you indicated, most firefighters don’t pay into Social Security as well. So, let’s we’ll make you a police officer. You are collecting a, let’s say $3,000 a month government pension that you earned while not paying Social Security taxes on your money.
What happened is basically the money that normally would have gone into Social Security was diverted into another pension program. Your police officer’s pension. So, you really didn’t necessarily pay less. It’s just that rather than going to Social Security and a government pension, it all just went to this government pension. So now you’re getting this $3,000 a month government pension and let’s say your spouse passes away.
So, you’ve never paid into Social Security. Let’s say your whole career is with as a police officer, you’re getting that $3,000 per month, so you’re not on your own Social Security record. You didn’t get enough time. You didn’t get ten years worth of work, which we had explored at earlier. That’s kind of a minimum. You need ten years where you did pay into Social Security.
Let’s say you didn’t have that. So, your spouse passes away and let’s say your spouse, when they pass away, was getting $2,000 per month off of Social Security because your spouse did work and paid into Social Security during their career, you inquire with us. You want to file for the Social Security benefits. You want to get the $2,000 a month that your spouse was receiving when they passed away.
Well, this is when the Government Pension Offset kicks in. The rule is very simple. If you’re collecting that non-covered government pension, which you are, you’re getting that $3,000. It will take two thirds 66% — of whatever your government pension is your police officer’s pension — it’s going to take two thirds of that and subtract that out of what you can get as a survivor off of your deceased spouse’s record.
So, two thirds of $3,000, that’s $2,000. When your spouse died, they were getting $2,000 per month. So now we subtract 2000 out of 2000 leaves us with zero. So, under the rules of the Government Pension Offset, if you are trying to file on somebody else’s record, not your own record, but somebody else’s record as a survivor, as a spouse, they’re going to take two thirds of whatever your government pension is, the government pension that you earned and did not pay Social Security taxes on.
They take two thirds of that and subtract it out of the Social Security survivor benefit that you could receive. In this scenario, it would mean that you’d be reduced to zero, and you would not get anything off of your deceased spouse’s record. If you’re deceased spouse, though, let’s say had been getting $2,500 per month. The same thing would happen.
We would subtract 2000 out of the 2500, and now you get $500 per month as a survivor’s benefit. So that’s basically how the Government Pension Offset works.
Seth
That makes perfect sense to me. Okay, Kirk, you explain a complicated topic straightforwardly. I appreciate that. So that example, [let’s] say I’m a police officer, I would continue to receive my LEOFF pension, but then I would also get $500 in the second scenario you provided. I would get $500 survivor benefit from Social Security; not the full $2,500 my spouse was previously getting.
Kirk
That is correct. That is correct.
Seth
That makes sense.
Kirk
So that would be the situation on how that would happen.
Jenny
So, and then that one is the Government Pension Offset provision. But then there’s also another provision we wanted to talk about today that could apply to Social Security benefits for people who receive a governmental pension, called the Windfall Elimination Provision or WEP.
Kirk
Yes. So, this one, this regulation is a little bit more difficult to explain. Now, then, for your listeners, if you do want to visit our website, there are two sites and on our website dedicated to this, if you go to our website and you, go to the search function right at the top of the page and you type in Government Pension Offset or GPO as it’s referred to, or you type in Windfall Elimination Provision or simply WEP.
You’ll find this site pretty quickly, and there’s some great handouts that will explain this a little bit more. There’s some nice illustrations to show you how the benefits will be modified. That will help you immensely. So, if you’re if you’re in this situation, if you’re a government employee and you do not pay into Social Security, I highly encourage you to do this research before reaching retirement age so you understand what the limitations are going to be.
So, the Windfall Elimination Provision, once again, don’t get this confused with the Government Pension Offset. Two very different rules. Government Pension Offset affected you if you were trying to get benefits on somebody else’s record. But now the Windfall Elimination Provision is going to affect you if you try to draw your own Social Security number. So, using this fictitious police officer that we’ve developed that was going to get $3,000 per month as a as a pension, let’s say this police officer also worked some part time while they were a police officer or maybe after they left the police department, they went to got to work for a private agency or maybe another government agency
where they did pay into Social Security. And so, they’ve gotten enough work to qualify for their own Social Security payment. And let’s say it’s not a lot of work they did. Let’s say their own Social Security check was going to be, let’s say, $900 per month if they waited until their full retirement age, 67. And let’s say they do that.
So, at age 67, they come in, they’ve been getting their retirement pension from the police department for many years. Now they want to start their Social Security benefits, and it would be normally $900 per month. If this police officer looked at their My Social Security account, the computer doesn’t understand that they’re going to get this non-covered government pension.
The computer doesn’t understand at this point that they’re going to be affected by the Windfall Elimination Provision. So, the computer is going to come back and say you’re going to get $900 per month. So, if the police officer hadn’t done any research on this, they would think that they’re going to get $900 per month. But they don’t know what we’re about to tell them: that they’re going to get affected by the Windfall Elimination Provision.
So now, they come into the office, they’re going to file for benefits, and we tell them about the Windfall Elimination Provision they go: “oh, kind of heard about that. Didn’t know how it’s going to affect me.” Now we got to give him the details about how it will lower their Social Security payments. So, what this does is actually modify the formula that we use to calculate a person’s monthly Social Security benefit.
And that’s all it’s doing. Basically, it is going to lower how much the individual is going to receive. And for conversation purposes, we’re basically going to say that it will lower an individual’s benefit by about $550 per month. So that’s the maximum that you could normally expect to see about 550. I say about 550, because this changes a little bit each year as the cost of living goes up, that reduction goes up a little bit also each year.
But for conversation purposes, we’re going to say the maximum that this person could be affected by would be a reduction of $550 to their $900 payment. The computer is actually going to run three basic tests to see how this person’s going to be affected. The first test is it goes, okay, I’m going to lower their $900 payment by $550.
The second test it runs is it says, I’m going to cut the individual’s benefit in half. So it says, okay, I’m going to reduce it by 550 or half of their benefit, their benefit is $900, half of that is 450. Good news, the lowest, the most that’s going to do to this person is reduce their Social Security payment by about $450.
Third option it will do, it will say, I’m going to lower this person by 50% of whatever their government pension is in this person’s situation, whatever their police officer’s pension is. I’m going to lower their benefit by the 50% of that. This person’s getting a $3,000 a month pension. Half of that is 1500. Good news. The computer’s always going to opt for the least of the three options.
So, the computer has three options. Lower the Social Security check by 1500. Lower the Social Security check by the 550 or lower the Social Security check by 450 and chooses to use the 450. So now we tell this police officer, your $900 payment has just been reduced to $450, and that’s how much you could file for because of the Windfall Elimination Provision.
Seth
I appreciate the there’s a lot of complexity in there that you summarized and gave us a great, clear, reasonable example. So really appreciate, Kirk, that you took the time to give us both of those examples. And you mentioned that if people want to research more about this on their own, going to the Social Security website, SSA.gov and then typing in either GPO for Governmental Pension Offset or WEP for Windfall Elimination Provision are really helpful ways to learn more about if these situations apply to you.
I have two takeaways that I want to run by and make sure I got this. So first takeaway if you or your spouse didn’t pay into Social Security while earning a governmental pension, you should do some more research. I think that’s one of our big takeaways for this episode.
Kirk
Absolutely.
Seth
The other takeaway you didn’t talk about, but I think this is important for DRS to say we get these questions a lot. These are really questions about your Social Security benefit. People oftentimes think these reductions might negatively impact their pension benefits. We don’t care at DRS whether or not you participated in Social Security or what your Social Security benefits are when you choose to receive them.
Anything like that, it has no impact on your pension benefits. It’s really the impact it’s having on your Social Security. So, you’re going to need to work with them. Sometimes they need information from us or from your former employer, and we’re certainly willing to provide that information. But it’s really your Social Security benefits that are going to possibly have an impact, and you’re going to want to learn more about that.
Kirk
Exactly. And I will say that we talked about this today and very general terms. Each person can almost in many different ways, be affected uniquely by these particular laws depending on what their work history looks like, depending on if they had a career, their entire career was in a situation where they didn’t pay into Social Security, maybe only half their career was.
There’s also a few exceptions to these particular laws, that exist that could end up modifying the effect on you. So, these are complex laws. I do encourage that, with DRS, I do a training class on these two particular laws, the Windfall Elimination Provision and the Government Pension Offset. That’s probably about an hour and 20-minute class that where we really dig a little bit deeper into these.
But I think we pretty well covered the heart of it as much as you can without looking at your individual case. The good news, I’d like people to take away with it, because the Windfall Elimination Provision can make a lot of people nervous when they’re looking at that. Remember, the most that it would do is reduce your benefits by about 550.
Once again, a generality, but if you want some more specific numbers visiting our website. Once again, we do have a special calculator where you can go ahead and type in some information from your work record, and it will give you a much more detailed explanation of how your benefits, Social Security payments could be affected.
Jenny
Yeah. And then once again, your website is…
Kirk
Seth
Perfect. Thank you very much Kirk for taking time and sharing this. And I appreciate also that you plugged the webinars and work that you do with DRS you know, throughout the year to educate people who are participating in Social Security in the state of Washington. So really appreciate all the work you do to educate all of our employees.
Kirk
No problem. And I think the one that covers the Windfall Elimination Provision and Government Pension Offset, I believe that is in December. So, if you want knowledge rather than a Christmas gift, join that webinar. This will give you a little bit more information about how these laws will affect you. And I do encourage you to try to go online and try to get some additional information about that.
We’ve just kind of scratched the surface here. If you’re getting close to retirement, you probably want a little more refined explanation of how this would affect you, especially if you’re really trying to track dollar for dollar what all your incomes are going to be.
Seth
Yeah, I appreciate that. We should also mention we talked a lot about police and fire. We know there are some city local governments that don’t participate in Social Security. So once again, check with your employer if it’s not something that you’ve ever thought about to figure out if you are or have in the past participated in Social Security.
Kirk
So exactly. Actually, believe it or not, I believe there’s over 140 different agencies in the state of Washington alone that don’t pay into Social Security. Now then, some of these are very small. They only maybe have three employees. But there are a number of agencies that do not pay in to Social Security.
Seth
Yeah, I appreciate that context. So once again yeah. Thanks for joining us, Kirk. And we certainly encourage people to go to their own Social Security account, sign up for My Social Security account at ssa.gov. And make sure you have better knowledge about the way your future Social Security benefit is going to be paid to you.
Kirk
Exactly.
Jenny
Thank you.
Kirk
Thank you.
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