Advice: fix the unfair GPO calculation in Social Security

Little in the Social Security discussion stirs anger and resentment like the Government Pension Offset or GPO. This provision affecting retired state and local government employees who have failed to pay Social Security has been around for more than 40 years and has fueled discontent ever since.

Some of that dissatisfaction is justified. If the retiree’s benefit control is subject to both the GPO and early-claim penalties, he or she will be systematically flawed due to a legislative blunder dating back decades. In particular, these seniors pay a significantly higher fine for claiming benefits before normal retirement age than the rest of us.

The problem is in the law. The Social Security Act instructs the agency to apply the GPO and the early retirement discount in the wrong order. The calculation has not worked correctly since its implementation in 1977.

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

But nearly two years after these findings were released, Congress is not working on a solution. In fact, lawmakers may not even be aware of the audit or how this legislative legacy affects seniors with life-changing sentences.

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

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

To illustrate this, the audit quoted a specific retiree whose decision to file for maternity benefits at age 60 cost her an estimated $26,428 in lifetime benefits. When the accountants allowed a 2.15% annual cost of living adjustment, the projected loss in benefits rose to above $51,000.

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

In response to the audit, the Social Security Administration assured OIG auditors that the agency would allow affected seniors to resubmit their claim, and would better inform future retirees about the higher level of penalties. In other words, the solution to this group of seniors’ failing is to explain to them that they don’t have the same benefits as everyone else.

The GPO serves a valuable purpose in Social Security – provided it works.

While the issue may not affect you personally, it probably affects people you know. The problem usually affects state and local employees whose employers do not participate in Social Security. These are teachers, police and firefighters who earn benefits earned by a spouse who has contributed to Social Security throughout his life.

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

The GPO serves a valuable purpose in Social Security – provided it works. Without this adjustment, Social Security would send unreasonably high survivor benefits to people who did not contribute to the system. So it exists to protect future retirees and serves to approach fairness. However, we should not try to protect future retirees by cheating current ones.

To say what should be obvious, it is not enough to explain to one group of retirees that they get less than everyone else. Fix that damn calculation.

Brenton Smith writes about Social Security.

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