On November 12, 2024, the U.S. House of Representatives passed the Social Security Fairness Act of 2023 (H.R. 82) with a bipartisan vote of 327 in favor and 75 against. This legislation aims to repeal the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP), provisions that have long affected the Social Security benefits of certain public sector employees. The bill now moves to the U.S. Senate for consideration, if the U.S. Senate does not pass the Social Security Fairness Act of 2023 (H.R. 82) by December 31, the bill will not become law during the current congressional session, and the legislative process will need to start over in the next session.

Understanding the GPO and WEP

Under the Government Pension Offset (GPO) rule, a government pension refers to a retirement benefit received from employment where Social Security taxes were not withheld. Typically, this applies to jobs in federal, state, or local government in the United States that are covered by alternative retirement systems instead of Social Security.

Key Characteristics of a Government Pension Under GPO

1. Employment Not Covered by Social Security:
   • The individual worked in a job where their employer did not withhold Social Security payroll taxes (FICA).
   • Instead, the employer contributed to a separate retirement system, such as a public employee retirement system.
2. Source of the Pension:
   • The pension is provided by a government entity, which could include:
     • Federal government.
     • State governments.
     • Local or municipal governments.
   • Examples include pensions from state teachers’ retirement systems, police and fire departments, or federal employees covered under the Civil Service Retirement System (CSRS).
3. Eligibility:
   • The GPO applies if the individual:
     • Receives a government pension from non-Social Security-covered employment.
     • Also qualifies for spousal or survivor benefits under Social Security based on a spouse’s work record.

Government Pension Offset (GPO)

The GPO reduces Social Security spousal or survivor benefits for individuals who also receive a government pension from employment not covered by Social Security.

• Mechanism: The Social Security benefit is reduced by two-thirds of the government pension.
• Example:
  • A retired teacher receives a $3,000 monthly government pension and qualifies for a $2,100 spousal benefit.
  • Under the GPO, the spousal benefit is reduced by $2,000 (two-thirds of $3,000), leaving only $100.

Windfall Elimination Provision (WEP)

The WEP modifies the formula used to calculate Social Security benefits for individuals who have worked in jobs not covered by Social Security and also qualify for benefits through other covered employment.

• Mechanism: A different formula reduces the amount of Social Security benefits based on the number of years of substantial earnings in covered employment.
• Example:
  • A retired government worker with 15 years of Social Security-covered work and a government pension receives a reduced Social Security benefit due to the WEP.

Provisions of H.R. 82

H.R. 82 proposes to:

1. Repeal the GPO:
   • Eliminate the reduction in spousal or survivor benefits caused by government pensions.
   • Allow affected individuals to receive their full spousal or survivor benefits in addition to their government pensions.
2. Repeal the WEP:
   • Remove the modified formula for calculating Social Security benefits for individuals with non-Social Security-covered work.
   • Enable affected individuals to receive their full Social Security benefits.

Effective Date:

• If enacted, these changes would apply to monthly Social Security benefits payable starting in January 2024.

Next Steps for the Bill

With the House’s approval, H.R. 82 advances to the Senate. The bill has garnered significant support, with 62 co-sponsors in the Senate, surpassing the majority needed for passage. However, the legislative calendar is tight, and the bill must be brought to the Senate floor for a vote before the end of the current session. If the Senate passes the bill, it will proceed to the President for signature into law.

Potential Impact of Repealing GPO and WEP

Repealing these provisions would:

• Increase Benefits: Restore full Social Security benefits to approximately 2.8 million retirees, including teachers, firefighters, and police officers, who have been affected by these offsets.
• Financial Implications: The Congressional Budget Office estimates that eliminating the GPO and WEP would cost the Social Security Trust Fund approximately $196 billion over ten years, potentially impacting the program’s long-term solvency.

Objections and Concerns

Opponents of the bill have raised several concerns:

• Fiscal Responsibility: The significant cost associated with repealing these provisions could exacerbate the financial challenges facing the Social Security system.
• Equity Issues: Some argue that repealing the GPO and WEP may provide disproportionate benefits to certain public sector employees compared to private-sector workers who have contributed to Social Security throughout their careers.
• Program Solvency: There are concerns that increasing payouts without corresponding revenue increases could hasten the depletion of the Social Security Trust Fund, leading to potential benefit reductions for all beneficiaries in the future.

Comparison to the Caribbean “No Two Full Pensions Rule”

The U.S. provisions (GPO and WEP) and the “No Two Full Pensions Rule”, which applies in some Caribbean countries, both address the issue of overlapping pension benefits but differ in application and scope.

Caribbean “No Two Full Pensions Rule”

• Mechanism: When an individual qualifies for two pensions (e.g., a Survivor’s Pension and an Old Age Pension), they receive the higher pension in full and 50% of the lower pension.
• Objective: This rule ensures fairness and sustainability by preventing individuals from receiving full benefits from multiple sources.

U.S. Provisions

• GPO and WEP: Specifically target Social Security benefits for individuals receiving pensions from non-Social Security-covered employment, reducing benefits to prevent “double-dipping.”
• Dual Entitlement Rule: In the U.S., individuals eligible for both their own Social Security retirement benefit and a spousal or survivor benefit do not receive both in full. Instead, they receive the higher of the two benefits, similar to the approach in the Caribbean but without the additional 50% of the lower benefit.

Figure 1: No Two Full Pensions parameter selected in Benefit Class Definition

Implementation in Interact SSAS

Interact SSAS, a social security administration system, handles complex benefit calculations, including rules like the “No Two Full Pensions Rule.”

Features of Interact SSAS:

• Configurable Benefit Class Settings: Administrators can flag specific Benefit Classes as subject to the “No Two Full Pensions Rule,” ensuring accurate application of the policy.
• Benefit Entitlement Policies: The system allows for detailed policy definitions, specifying conditions and percentages (e.g., 50% of the lower pension) for overlapping benefits.
• Automated Calculations: When an individual qualifies for multiple pensions, Interact SSAS automatically calculates the total benefit according to the defined rules, reducing administrative burden and minimizing errors.
• Transparent Reporting: Provides clear breakdowns of benefit calculations, ensuring transparency and enabling beneficiaries and administrators to understand how the rules were applied. This is especially important when managing complex cases with overlapping benefits, ensuring fairness and compliance with legal requirements.

Figure 2: No Two Full Pensions rule activate at the Benefit Entitlement Policy level

Example Implementation in Interact SSAS

1. Benefit Classes:
   • The Benefit Classes under which Survivor’s Pension and an Old Age Pension are configured in the system will both have the “No Two Full Pensions Rule” flag enabled.
   • In the Benefit Policy Entitlement for both pensions types, the No Two Full Pensions Rule will be checked and the 50% reduction will be defined.
   • The system automatically identifies the higher pension and calculates the reduced portion of the lower pension according to the policy (e.g., 50% of the lower pension).
2. Automated Scenario:
   • A beneficiary qualifies for a Survivor’s Pension of $500/month and an Old Age Pension of $800/month.
   • Interact SSAS calculates:
     • $800 (full Old Age Pension).
     • $250 (50% of the Survivor’s Pension).
     • Total Monthly Benefit: $1,050.
   • This calculation is logged and included in detailed benefit reports for review and audit.
3. Integration with Financial Systems:
   • The system seamlessly integrates these calculations with the General Ledger (GL), ensuring accurate financial reporting and compliance.

Exploring Other “No Two Full Pensions” Rules in the U.S. and the U.K.

The “No Two Full Pensions Rule” in the Caribbean prevents individuals from receiving full overlapping pensions by awarding the higher pension in full and a percentage (e.g., 50%) of the lower pension. While not officially referred to as “No Two Full Pensions” rules, similar principles exist in the U.S. and U.K. to regulate overlapping benefits. Here’s a closer look:

Another “No Two Full Pensions Rule” in the U.S.

In addition to the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP), the U.S. has other provisions that manage overlapping benefits:

1. Dual Entitlement Rule

• How It Works:
  • If an individual is eligible for both their own Social Security retirement benefit and a spousal or survivor benefit, they do not receive both in full.
  • Instead, they receive the higher of the two benefits.
• Purpose:
  • This ensures that Social Security payouts remain equitable and are not duplicated for the same individual.
• Example:
  • Personal Retirement Benefit: $1,200/month.
  • Spousal Benefit: $1,000/month.
  • Under the Dual Entitlement Rule, the individual receives $1,200/month (the higher benefit), not $2,200.

2. Coordination Between Disability and Retirement Benefits

• Individuals eligible for Disability Insurance Benefits (DIB) and Old Age Retirement Benefits do not receive both simultaneously.
• When they reach full retirement age, the disability benefit automatically converts to the retirement benefit.

Key Differences between both approaches:

• The U.S. Dual Entitlement Rule awards only the higher benefit, without allowing a percentage of the lower benefit.
• In the Caribbean, beneficiaries receive both benefits, but the lower pension is reduced (e.g., to 50%).

The “No Two Full Pensions Rule” in the U.K.

The U.K. manages overlapping benefits under its State Pension and Survivor Benefit policies, applying rules that resemble the “No Two Full Pensions Rule.”

1. Overlapping Benefits Rule

• The U.K. has an Overlapping Benefits Rule, which prevents individuals from receiving two income-replacement benefits at the same time.
• How It Works:
  • If an individual qualifies for two benefits, such as a State Pension and a Survivor’s Benefit, the lower benefit is either reduced or offset against the higher benefit.
  • This is common for widows or widowers receiving Bereavement Allowance or Survivor’s Pension while also qualifying for a State Pension.

2. State Pension Interaction

• Survivor benefits from a late spouse can be inherited as part of the State Pension system, but the total cannot exceed the maximum allowed under the State Pension rules.
• Example:
  • A widowed individual may receive part of their late spouse’s State Pension entitlements but cannot combine this with their own pension to exceed the maximum pension limit.

Key Differences with the Caribbean:

• In the U.K., overlapping benefits are capped, either by reducing the lower benefit or imposing a maximum total payout.
• The rule in the Caribbean is more specific, allowing full payment of the higher pension and 50% of the lower pension.

Why These Rules Exist

1. Preventing Overlapping Payments:
   • These rules ensure individuals do not receive excessive payouts from overlapping benefit programs, maintaining fairness.
2. Sustainability:
   • Social security systems must manage finite resources. Limiting overlapping benefits helps preserve funds for future beneficiaries.
3. Equity:
   • These provisions balance benefits across populations, avoiding scenarios where some individuals receive disproportionately high payouts.

Conclusion

While the “No Two Full Pensions Rule” as practiced in some Caribbean countries is distinctive in allowing partial payments of the lower pension, similar principles exist in the U.S. and U.K. under the Dual Entitlement Rule and Overlapping Benefits Rule. However, these rules in the U.S. and U.K. typically prioritize capping or eliminating the lower benefit entirely, reflecting a stricter approach.  By understanding these rules, social security administrators can better design equitable systems that balance fairness with financial sustainability.

Interact SSAS makes it possible to implement these complex policies effectively, providing automation, transparency, and accuracy. Whether managing overlapping pensions in the Caribbean or adapting to legislative changes in the U.S., robust systems like Interact SSAS play a critical role in ensuring social security systems remain equitable and sustainable for future generations.