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Outside the Box

Aug. 16, 2022, 9:27 a.m. EDT

Fix the unfair GPO calculation within Social Security

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By Brenton Smith

Little within the discussion of Social Security breeds anger and resentment like the Government Pension Offset, or GPO. This provision that affects retired state and local government employees who haven’t paid into Social Security has been around for more than 40 years, fueling discontent ever since.

Some of that discontent is justified. If the retiree’s benefit check is subject to both the GPO and early claiming penalties, he or she will be systemically shortchanged by a legislative gaffe dating back decades. Specifically, these seniors pay a substantially higher penalty for claiming benefits before normal retirement age than the rest of us do.

The problem is in the law. The Social Security Act directs the agency to apply the GPO and the discount for early retirement in the wrong order. The calculation hasn’t worked correctly since it was implemented in 1977.

The Office of the Inspector General investigated the impact of claiming strategies for Widower(s) in an audit . It concluded that a select group of seniors lost more than $25,000 on average in lifetime benefits because the Social Security Administration had failed to warn them of excessive penalties caused by claiming prior to normal retirement.

Yet almost two years after these findings were released, Congress isn’t working on a solution. In fact, lawmakers may not even be aware of the audit or how this legislative legacy is hitting seniors with life-changing penalties.

The GPO was created in 1977 as a means of adding equity to the benefit formula for people who have worked in jobs not covered by Social Security. Likewise, the benefit adjustment for early claiming exists to maintain equity between those who take the benefits early and the rest of us. 

These rules work well when applied independently. When these features interact, however, the senior is apt to lose tens of thousands of dollars in lifetime benefits. Some seniors may accidentally lose all of their earned benefits over this quirk in the benefit formula.

To illustrate this, the audit cited a specific retiree whose decision to claim spousal benefits at the age of 60 cost her a projected $26,428 in lifetime benefits. When the auditors allowed for an annual cost of living adjustment of 2.15%, the expected benefit loss rose above $51,000.

In this case, the GPO reduced the retiree’s benefit by $1,009 when it should only have lowered it by $673.

In response to the audit, the Social Security Administration assured OIG auditors that the agency would allow affected seniors to refile their claim, and it would do a better job of informing future retirees about the higher level of penalties. In other words, the solution to shortchanging this group of seniors is to explain to them that they do not have the same benefits as everyone else.

While the issue may not affect you individually, it likely touches people that you know. The issue tends to affect state and local workers whose employers do not participate in Social Security. These are schoolteachers, police and firefighters who deserve benefits earned by a spouse who has contributed to Social Security over a lifetime.

It is difficult not to notice that these rules have been broken for 40 years and no one in Congress has noticed. Currently, lawmakers are looking to expand survivor and spousal benefits — without noticing how much we have systematically cheated these retirees for decades. Other lawmakers want to eliminate the GPO without noticing the injustice that they seek to address.

The GPO serves a valuable purpose in Social Security — provided that it works. Without this adjustment, Social Security would steer unreasonably high survivor benefits to people who did not contribute to the system. It thus exists to protect future retirees and serves to approximate fairness. We shouldn’t, however, attempt to protect future retirees by cheating current ones.

To state what should be self-evident, it is not sufficient to explain to one set of retirees that they get less than everyone else. Just fix the damn calculation.

Brenton Smith writes about Social Security.

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