Alan L. Gustman, Thomas L. Steinmeier, Nahid Tabatabai. 2013. The social security windfall elimination and government pension offset provision for public employees in the health and retirement study. Working Paper 19724. National Bureau of Economic Research
Abstract: :This paper uses data from the Health and Retirement Study to investigate the effects of Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provision on Social Security benefits received by individuals and households. WEP reduces the benefits of individuals who worked in jobs covered by Social Security and also worked in uncovered jobs where a pension was earned. WEP also reduces spouse benefits. GPO reduces spouse and survivor benefits for persons who worked in uncovered government employment where they also earned a pension.
Unlike previous studies, we take explicit account of pensions earned on jobs not covered by Social Security, a key determinant of the size of WEP and GPO adjustments. Also unlike previous studies, we focus on the household. This allows us to incorporate the full effects of WEP and GPO on spouse and survivor benefits, and to evaluate the effects of WEP and GPO on the assets accumulated by affected families.
Among our findings: About 3.5 percent of households are subject to either WEP or to GPO. The present value of their Social Security benefits is reduced by roughly one fifth. This amounts to five to six percent of the total wealth they accumulate before retirement. Households affected by both WEP and GPO lose about one third of their benefit. Limiting the reduction in the Social Security benefit to half the size of the pension from uncovered employment reduces the penalty from WEP for members of the original HRS cohort by about 60 percent.
与之前的研究不同，我们详尽地研究了从未被覆盖的工作中得到的补贴——它对WEP与 GPO调整具有决定性作用。另外的不同在于，我们关注了家庭。这让我们涵盖了WEP与 GPO对配偶和幸存者收入的全部影响，并估算了WEP与 GPO对所涉及家庭的财产的影响。
在我们的发现中：约3.5%的家庭被WEP与 GPO中至少一个所影响。他们社会保障收益的现值大约下降了五分之一。这约等于他们退休前积累的财富总值的5%-6%。被WEP或 GPO影响的家庭丧失了大约三分之一的财富。将不被覆盖的工作的社会保障收益的下降限制在补贴的一半减少了HRS原始人群60% WEP的罚金。
数据来源：Health and Retirement Study (HRS)。
Conclusion:This paper has investigated the effects of Social Security’s Windfall Elimination
Provision (WEP) and Government Pension Offset (GPO) provision on Social Security benefits received by individuals and households. A number of the innovations in this study turn out to be of central importance to having a full understanding of the effects of WEP and GPO adjustments. Unlike previous studies, we take explicit account of pensions earned on jobs not covered by Social Security, a key determinant of the size of WEP and GPO adjustments. Also unlike previous studies, we focus on the household. This allows us to incorporate the full effects of WEP and GPO on spouse and survivor benefits, and to evaluate the effects of WEP and GPO on the preretirement assets accumulated by affected families.
Our analysis is based on data from the original cohort of the Health and Retirement Study (HRS) and the most recent cohort for which a full set of required information is available. We constructed households from HRS data, estimated the paths of covered and uncovered employment and earnings for each spouse over their lifetimes, estimated the values of pensions from uncovered work, calculated Social Security benefits using the Social Security Administration’s ANYPIA program, and calculated the sizes of any WEP and GPO offsets. We also estimated the relations between the sizes of these adjustments and pension and other wealth accumulated by retirement age.
Among our specific findings are the following:
l Of 7,623 households in the original HRS cohort, 3.8 percent are subject to either WEP or to GPO. The comparable figure for the Early Boomer cohort is 3.5 percent.
l Among the HRS households affected by either WEP or GPO, the WEP adjustment is $17,050 and the GPO adjustment is another $14,101, reducing the present value of Social Security benefits by 24.1 percent among the affected households. For the Early Boomer cohort,WEP and GPO reduce the present value of Social Security benefits by 18.5 percent.
l For members of the original HRS cohort affected by WEP or GPO, benefits lost amount to ten percent of the value of pensions plus Social Security they in fact receive and to 6.1 percent of their total wealth. Comparable losses for members of the Early Boomer cohort amount to 8.7 percent of total Social Security plus pension wealth and 5.3 percent of total wealth.
l By far the largest impact is on households affected by both WEP and GPO. Those from the original HRS cohort lose $45,786 in present value of benefits, or 38.9 percent of their total Social Security benefits. Those subject to WEP and GPO from the Early Boomer cohort lose 28.7 percent of their benefit.
l We also decomposed the effects of the WEP adjustment into two parts, the part due to the use of a lower replacement rate up to the first bend point in the PIA formula, and the mitigation of this adjustment by the pension. Limiting the reduction in the Social Security benefit to half the size of the pension from uncovered employment reduces the penalty from WEP for members of the original HRS cohort by $5,924, that is, by 58 percent. For the Early Boomers, the reduction in the replacement rate alone would lower benefits by $12,476, so limiting the adjustment to half the value of the pension from uncovered work reduces the WEP penalty by $7,676, or by 61.5 percent.
We have also discussed the rationale for the specification of WEP and GPO adjustments to Social Security benefits under current law. This law is designed to address a number of perceived inequities when those who work on jobs not covered by Social Security also become eligible for own, or for spouse or survivor benefits under Social Security.
The law does meet a number of its purposes. However, the limitation of the WEP offset to half the value of the pension mitigates the effects of this adjustment. The clear winners in this system are the individuals who benefit from the progressive Social Security benefit formula, having worked in both covered and uncovered employment, having become entitled to a Social Security benefit, but who had little or no pension from uncovered work. These individuals experience only modest effects of WEP and GPO adjustments. Consequently, they have gained a higher rate of return to Social Security taxes paid than those who continuously work in covered jobs. The reason is that work in uncovered employment is counted as zero years of earnings.
It has been argued that the WEP adjustment disproportionately affects low wage workers because it is applied only up to the first bend point of average indexed earnings. However, this argument ignores the effect of limiting WEP adjustments to half the value of the pension earned on the uncovered job. Social Security benefits will only be affected if the individual has high enough earnings in government or other uncovered employment to generate a large pension. Consequently, those who criticize the design of WEP and GPO on distributional grounds are exaggerating their case. This is not to say, however, that there is no case for redesign.
In addition, the law does not address all potential inequities. The Government Pension
Offset adjustment seems fair when comparing two earner households with identical earnings histories. In one, both spouses always worked in covered employment and paid payroll taxes. In the other, the lower paid spouse did not work in covered employment and thus did not pay taxes. In the absence of the GPO, the household where the low earner worked in uncovered government employment would not have the top up to spouse benefits reduced by own Social Security benefits, as is standard for dual beneficiaries. That household would therefore receive higher spouse and survivor benefits than the household where work was exclusively in covered employment. On the other hand, GPO seems to be quite unfair to affected households when they are compared to one earner households, where one spouse receives the full spouse or survivor benefits. Here we have two households, where the primary earner paid Social Security taxes in both, while the spouse did not. Yet one will receive full spouse and survivor benefits, while the other will have spouse and survivor benefits reduced or eliminated. At the heart of this problem is the disparate treatment favoring one earner over two earner households, whether the low earner of the two earner household worked in uncovered employment, or only in covered employment
We conclude by reminding the reader of a number of caveats affecting our estimates of WEP and GPO adjustments. First, respondents underreport the extent they work for a government employer. To partially deal with this underreporting, we counted a respondent as working for a government if there is a self-report of having worked for a federal, state or local government employer, or if the respondent reported working in an uncovered job. But not all jobs that are not covered by Social Security are government jobs. Second, there are small inconsistencies in the Social Security records that we use to identify covered and uncovered employment. Third, throughout the analysis, we calculate WEP and GPO adjustments using respondent self-reports about expected pension values, which we link to uncovered employment. GAO (2007) indicates that government pension income is not always accurately reported to the Social Security Administration by affected workers. To the extent that government pensions are underreported to SSA, we overstate the size of WEP and GPO adjustments. Fourth and last, we remind the reader of a caveat we noted at the outset. We have not included behavioral responses to WEP and GPO as affected respondents and members of their households react to the incentives created by these policies. It is, of course, unclear how many understand these incentives and make their employment and benefit election choices with these incentives in mind.