Social Security Offsets

How and why your Social Security benefits are reduced

Fire fighters who do not pay Social Security payroll taxes, but who qualify for Social Security benefits, either by paying into Social Security at a second job or because their spouse is covered by Social Security, may see their Social Security benefits reduced by two "offsets." This is the result of two laws passed by Congress, one in 1977 and the other in 1983, to eliminate what they called "windfalls" for public employees who received both Social Security benefits and a government pension from non-Social Security covered employment.

Many fire fighters remain unaware of these laws, which effectively reduce their retirement income. The following information explains how these two laws affect fire fighters…

Provision Number One: The Government Pension Offset

Under current law, many individuals who have worked at jobs that are not covered under Social Security are eligible for Social Security benefits if the program covers their spouse. In such cases, individuals can receive 50% of their spouse's Social Security benefit. But because of a law called the Government Pension Offset (GPO), this provision is modified for fire fighters and other public employees who receive government pensions.

Under a provision of the GPO, fire fighters who receive government pensions receive drastically reduced spousal Social Security benefits. And even these modest benefits cannot be received if 2/3 of the fire fighter's pension would be greater than the amount of the spousal Social Security benefit. In order to calculate the spousal Social Security benefits for which you are eligible, you must use this formula: (Spouse's SS Benefit/2)- (Fire fighter's pension x (2/3)).

This chart provides a sample of the spousal benefits an individual can receive:

Spouse's benefit/month Spouse's benefit/2 Fire fighter's pension/month Fire fighter's pension x 2/3 Fire fighter's Social Security benefit
$3,000 $1,500 $3,600 $2,400 $0
3,000 1,500 3,000 2,000 0
3,000 1,500 2,400 1,800 0
3,000 1,500 1,800 1,200 300
3,000 1,500 1,200 800 700
4,000 2,000 3,600 2,400 0
4,000 2,000 3,000 2,000 0
4,000 2,000 2,400 1,800 200
4,000 2,000 1,800 1,200 800
4,000 2,000 1,200 800 1200

Provision Number Two: The Windfall Elimination Provision

Most individuals who contribute to Social Security are entitled to receive as benefits: 90% of the first $531 of their average monthly wages; 32% of the next $2,671; and 15% of anything above that (these numbers based on a worker who turned 62 in the year 2000, and are adjusted annually for inflation). Most fire fighters, however, do not have Social Security contributions deducted from their paychecks. Under a law called the Windfall Elimination Provision (WEP), the 90% figure could be reduced to as little as 40% – even if you contributed to Social Security long enough to qualify.

If you have worked jobs for which Social Security taxes were deducted, in the 35 years prior to retirement, the time spent at those jobs can be used to increase the percentage of benefits received. If, for instance, you have worked in such a job for 30 or more of the 35 years prior to retirement, you are eligible to receive full Social Security benefits. On the other hand, if you have done so for 20 or fewer of the previous 35 years, you are entitled only to 40% of your average.

For every year more than 20 that you have worked, you are entitled to a 5% increase in benefits. An individual who has worked for 21 years in a job that contributed to Social Security would be entitled to 45% of their average monthly wages, with that number increasing to 50% for an individual with 22 years in such a job, and so forth, according to the chart below:

Years of "Substantial Earnings" Percentage of overall earning received
30 or more 90%
29 85%
28 80%
27 75%
26 70%
25 65%
24 60%
23 55%
22 50%
21 45%
20 or fewer 40%

Substantial Earnings Test Under WEP

In order to qualify for these increased benefits, however, your earnings in the years you contributed to Social Security must have been "substantial." The requirements for what constitutes "substantial" vary from year to year, according to the chart below:

Year

Substantial Earnings

Year

Substantial Earnings

1937-54

$900 1990 $9,525
1955-58 1,050 1991 9,900
1959-65 1,200 1992 10,350
1966-67 1,650 1993 10,725
1968-71 1,950 1994 11,250
1972 2,250 1995 11,325
1973 2,700 1996 11,625
1974 3,300 1997 12,150
1975 3,525 1998 12,675
1976 3,825 1999 13,425
1977 4,125 2000 14,175
1978 4,425 2001 14,925
1979 4,725 2002 15,750
1980 5,100 2003 16,125
1981 5,550 2004 16,275
1982 6,075 2005 16,725
1983 6,675 2006 17,475
1984 7,050 2007 18,150
1985 7,425 2008 18,975
1986 7,875 2009-10 19,800
1987 8,175    
1988 8,400    
1989 8,925    
Source-http://www.ssa.gov/pubs/10045.html

Here's the difference that the WEP Can Make in Your Social Security Benefits

Avg. Monthly Wage (contributing to SS) Years of SS Contribution Benefits Without WEP Benefits With WEP Percent Reduction
$1,000 18 $627.98 $362.48 42%
1,000 23 627.98 442.13 30%
1,000 28 627.98 574.88 8%
2,000 18 947.98 682.48 28%
2,000 23 947.98 762.13 20%
2,000 28 947.98 894.88 6%
4,000 18 1,452.32 1,186.82 18%
4,000 23 1,452.32 1,266.47 13%
4,000 28 1,452.32 1,399.22 4%

Double Play: How the WEP and GPO Can Hit You Together

It is possible for a fire fighter to be affected by both of these offsets if 2/3 of his or her pension plus his or her Social Security benefits is less than one half of his or her spouse's Social Security benefits. In such a case, these provisions work together to reduce the spousal benefit for which an individual would be eligible to a very small amount. In this case, the Social Security benefits received after the WEP would be used to offset a spouse's benefit dollar for dollar. The remaining amount would almost certainly be very small.

The Future of Social Security Offsets

Both the windfall and government pension offsets remain controversial. Legislation has been introduced in the last several sessions of Congress to lessen or repeal the offsets, but these proposals have not received serious consideration by the congressional committees with jurisdiction over Social Security.

The IAFF supports elimination of the offsets, as long as repeal would not lead to mandatory inclusion under Social Security for all fire fighters. The IAFF continues to work with congressional leaders to both retain independent retirement systems outside of the Social Security system and to lessen the impact of the offsets on fire fighters who do qualify for Social Security benefits.

 

Content on this page provided by the IAFF Financial Corporation