- Employees who receive both pension and social security may suffer a reduction in their benefits due to current regulations.
- This may come as a surprise to some workers and their families.
- Here’s what beneficiaries need to know about the risk of overpayments and how they can estimate their income in retirement.
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When Joyce Debnam’s husband died, she received $1,400 a month in Social Security survivor benefits.
Eight months later, that income unexpectedly changed. The trigger: Debnam retired from her job at the United States Postal Service in 2013 after four decades of service.
This life change resulted in Debnam’s Social Security benefits being cut to just $174 per month. In addition, the Social Security Administration informed her that she would have to pay back $5,000 in overpaid benefits.
“When I got that letter I almost fell to the ground,” Debnam said.
She was particularly surprised because Debnam had contacted the Social Security Administration before she retired to let them know she was retiring and asked if it would affect her monthly checks.
“They told me no, I was eligible for retirement and would get my money,” Debnam said.
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Today, Debnam, 80, of Suitland, Maryland, has paid back $5,000 and is relying almost entirely on her postal pension to pay her bills, meaning her other retirement goals like traveling or renovating her home are not possible are.
Debnam is one of millions of workers affected by the Social Security rules for state employees and cuts to the benefits they receive.
The Windfall Elimination Provision (WEP) reduces benefits for people who receive a pension from work where they did not pay into Social Security and also had less than 30 years of substantial employment or covered employment.
According to the Congressional Research Service, about two million people, or 3% of Social Security recipients, were affected by WEP as of December 2022.
Far too often, people are not aware that they are subject to the WEP or GPO until their spouse retires.
Rep. Mike Carey
R-Ohio
Another provision, the Government Pension Offset (GPO), reduces spousal, widow, or widower pensions for individuals who also receive pensions from government employment not covered by Social Security.
As of December 2022, approximately 734,601 Social Security recipients were affected by the GPO.
Like Debnam, many workers are surprised to see their benefits reduced when they count on that income.
“These policies make it difficult for affected workers and their families to plan for their retirement,” Rep. Mike Carey, R-Ohio, said during a recent House Ways and Means subcommittee hearing on the rules in Baton Rouge, Louisiana.
“Far too often, people are unaware that they are subject to the WEP or GPO until their spouse retires,” Carey said.
This is causing some people to return to work, while others are adjusting their spending habits or changing their living standards, he noted.
“Even for officials who are aware of these guidelines, the complexity of these formulas makes it difficult to determine the Social Security benefits they will ultimately receive,” Carey said.
Congress is considering ways to address these rules. One proposal, the Social Security Fairness Act, calls for eliminating WEP and GPO entirely. The bicameral, bipartisan bill is supported by a majority of House Democrats with 300 co-sponsors.
Professional organizations like the American Postal Workers Union and others representing police, firefighters and teachers are supporting the change.
Experts say it will be difficult to find a solution that equally compensates workers who pay into Social Security throughout their careers and those who also work jobs that pay into a pension.
For now, affected workers must follow complicated rules to plan their retirement.
Additionally, they may be affected by benefit overpayments if beneficiaries receive more money than they are entitled to because the Social Security Administration has incorrect or incomplete information.
It would be nice if state and local governments provided the agency with pension benefit data, pension benefit, but they don’t.
Mark Warshawsky
Senior Fellow at the American Enterprise Institute
In such cases, the agency requires the beneficiaries to repay the money.
Pension overpayments primarily affect state and local government recipients who receive unfunded pensions, wrote Mark Warshawsky, senior fellow at the American Enterprise Institute and former deputy commissioner for retirement and disability policy at the Social Security Administration, in a recent editorial.
The agency may discover a pension it did not know existed or a pension income amount that was not previously reported.
“Broadly speaking, the way to prevent this is to get the data much quicker,” Warshawsky said.
“It would be nice if state and local governments provided the pension benefit and pension benefit data to the agency, but they don’t,” Warshawsky said.
Beneficiaries affected by these rules can take certain steps to estimate how much income they can expect in retirement.
For employees with five or more years of unfunded income, the Social Security Administration provides a supplemental information sheet on the WEP and GPO rules.
While the agency does not calculate the revised retirement benefit to match this income, individuals can do this themselves using online tools, including WEP and GPO calculators.
“We recommend that people review their Social Security return at least once a year, which contains important WEP and GPO information,” a Social Security spokeswoman said in a statement.
There is still a risk that information will be overlooked or incorrect data will be transmitted. This has led Laurence Kotlikoff, a social security expert and economics professor at Boston University, to urge beneficiaries to carefully track their own income and pension information and compare it with Social Security records.
In the event that Social Security recipients receive a notice of an overpayment, they may be able to negotiate a deal for a partial payment, an extension of the payment period or a waiver of a portion of the overpayment, Warshawsky noted.
“This has to be negotiated individually for each person,” Warshawsky said.