GPO/WEP Argument Solved by Personal Accounts

May 12, 2003

On Friday, May 2, the Social Security Subcommittee of the House Ways and Means Committee held a hearing on Social Security provisions affecting public employees. The two provisions, the Government Pension Offset and the Windfall Elimination Provision affect about six million federal, state, and local government employees.

The GPO reduces public employees' Social Security spousal or survivor benefits by two-thirds of their public pension. But private-sector employees get similar treatment, according to Robert Wilson, deputy commissioner of legislation and congressional affairs at the Social Security Administration: Social Security spousal benefits are one half of retirement benefits earned by the working spouse in the private sector.

The WEP reduces the earned Social Security benefits of an individual who also receives a public pension from a job not covered by Social Security.

At the hearing, Rep. E. Clay Shaw (R-Fla.) explained:

The Social Security benefits formula is designed to help people out of poverty by replacing more of low-wage workers through retirement wages. However, if a worker does not pay Social Security payroll taxes through his or her job, the benefit formula records zero earnings for that job. If a person has many years where zero earnings are recorded for his job, he or she may appear to have low average wages while this was actually not the case. As a result, the [Social Security] benefit formula will treat him or her as a low-wage worker and replace more of their free retirement wages giving an unintended so-called windfall.

Thus, the provision's purpose is prevent public employees who did not pay Social Security taxes on their government wages for a number of years from receiving more than their fair share of benefits.

At the hearing, several representatives of government workers and teachers unions testified that the GPO and the WEP reduce benefits that they rightfully earned and that the provisions should be eliminated. However, Robert Wilson testified, "any significant changes in the GPO or WEP should only be considered as part of the broader context of comprehensive reform of the Social Security program."

The debate on entitlement provisions only strengthens the case for personal accounts. Those people who argue against the two laws inadvertently concur with those in support of personal accounts: they want to rewarded for their years in the workforce and keep what benefits they have paid.

A system in which retirement funds are individualized negates any possibility for benefit distortions. Spouses would receive ownership of 50 percent of the worker's personal retirement account, regardless of whether the spouse worked as a public employee and received a government pension. Likewise, employees who move into the public sector, as they get older could keep benefits they had paid to Social Security in an account. Thus, workers who move in and out of the public sector would not be treated unfairly, nor would they be overcompensated with miscalculated working histories for Social Security benefits.

Currently, retirement benefits are politically determined and are subject to how much the system can afford, not how much an individual contributed. Hence, property rights to Social Security contributions are essential to solving the GPO and WEP debate. For more information, see "Property Rights: The Hidden Issue of Social Security Reform," by Charles E. Rounds Jr. Rounds is a board member of the Cato Institute's Project on Social Security Choice.

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