The reason for the pension offset is relatively straightforward. Social Security provides spousal benefits to individuals (generally women) who have little or no Social Security benefits of their own. Some people, however, worked in non-covered employment where they were not required to pay Social Security taxes. These people appear as if they had very low incomes, even if they are receiving pensions from their job.
The offset reduces Social Security spousal or widow's benefits by two-thirds of the amount of the individual's government pension. For instance, an individual receiving $600 monthly from their government pension would see their Social Security benefits reduced by $400.
Sen. Barbara A. Mikulski (D-Md.) has introduced S
611, the Government Pension Offset Reform Act, with 12 co-sponsors
from both sides of the aisle. Rep. William J. Jefferson (D-La.) already
has 170 co-sponsors for H.R.
664, which was introduced by not passed in the previous session.
Meanwhile, two House members also have introduced bills to alter the
windfall elimination offset.
Workers who spent part of their working lives in non-covered positions
would often receive disproportionately high Social Security benefits
in the absence of the offset. The reason is that a worker receives Social
Security retirement benefits based upon his Average Indexed Monthly
Earnings (AIME). A worker who spent many years in a non-covered occupation
would have an artificially low AIME for Social Security purposes, implying
that he had low lifetime earnings. Social Security's progressive benefit
formula replaces a much higher percentage of earnings for those with
lower earnings, so workers with many years in government employment
and relatively few in the private sector would receive artificially
high Social Security benefits. The offset reduces Social Security benefits
for workers receiving a pension from employment not subject to Social
Security taxes. Rep. Max Sandlin (D-Tex.) has introduced legislation
to repeal the windfall offset provision while Rep. Barney Frank
(D-Mass.) seeks a "partial
repeal."
The lesson for reformers from the various offets, as well as from the
so-called "notch issue" and other matters, is that a politicized pension
system lacking in property rights for workers inevitably generates bones
of contention between retirees wishing to receive more benefits and
taxpayers and the government sometimes loath to provide them. As Charles
Blahous puts it in his recent book, Reforming
Social Security, "Because benefits are set through a political
process each year, not by the level of savings that each individual
has accrued and over which he has property rights, the charge can perpetually
be made that individuals are being ripped off and that they need someone
to lobby on their behalf."
For more information, see "Property Rights:
The Hidden Issue of Social Security Reform," by Charles E. Rounds
Jr.
