Introduction

The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) are two separate provisions that reduce regular Social Security benefits for workers and/or their eligible family members if the worker receives (or is entitled to) a pension based on earnings from employment not covered by Social Security. The WEP affects retired or disabled workers and their family members, and the GPO affects spouses and survivors.

Some beneficiaries who are entitled to both Social Security retirement benefits and spousal (or survivors') benefits (i.e., dual entitlement) may be affected by both the WEP and the GPO.¹ As of December 2023, 322,129 Social Security beneficiaries had their benefits reduced by both provisions, which accounted for 43% of spouses and survivors who were affected by the GPO and 16% of beneficiaries affected by the WEP. The provisions' benefit offsets create complications in calculating and administering Social Security benefits.

This report examines the current-law provisions of the WEP and the GPO, who is affected by both provisions, and the size of the affected population. It also focuses on issues related to Social Security overpayments associated with dually entitled beneficiaries affected by both provisions, the two offsets' impact on Social Security benefits and household wealth, and how extending Social Security coverage through Section 218 agreements impacts the population affected by both provisions.

For an overview of the WEP and the GPO, see CRS In Focus IF10203, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO); and for an explanation of dual entitlement, see CRS In Focus IF10738, Social Security Dual Entitlement.

Background on the WEP and the GPO

A worker's employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are subject to Social Security payroll taxes. About 6% of all workers are not covered by Social Security,² mainly state and local government employees covered by alternative state-retirement systems and most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS) or other alternative retirement plans.³ Social Security beneficiaries who receive a pension based on employment not covered by Social Security may be affected by the WEP, the GPO, or both.

The Windfall Elimination Provision

The WEP was enacted in 1983 as part of major amendments to Social Security.⁴ Its purpose was to remove an unintended advantage or windfall that the regular Social Security benefit formula provided to workers who also had pensions from noncovered employment. The regular formula is weighted to replace a greater share of career-average earnings for low-paid workers than for high-paid workers.⁵ However, the formula could not differentiate between those who worked in low-paid jobs throughout their careers and other workers who appeared to have been low paid because they worked in jobs not covered by Social Security for many years (these years are shown as zeros for Social Security benefit purposes). The WEP is designed to remove this unintended advantage.

Under the WEP, a worker's Social Security benefit is computed using a modified formula, rather than the regular benefit formula, which results in a lower initial monthly benefit. The WEP applies to most people who receive both a pension from noncovered work (including certain foreign pensions) and Social Security retired-worker benefits based on fewer than 30 years of substantial earnings in covered employment or self-employment.⁶ In 2024, the WEP reduces the share of the first $1,174 of average indexed monthly covered earnings that Social Security benefits replace, from 90% to as low as 40%. That adjustment reduces the associated benefit from $1,056.60 to as low as $469.60 per month, with a maximum reduction of $587.00 before any other adjustments.⁷ The WEP reduction amount is phased out for workers with between 21 years and 30 years of substantial earnings in employment covered by Social Security. Therefore, the WEP reduction's impact is smaller for workers who have more years of substantial covered employment. In addition, the WEP includes a guarantee that the reduction in the benefit amount caused by the WEP formula is limited to one-half of the noncovered pension.

The Dual Entitlement Rule and the Government Pension Offset

In general, Social Security spousal and survivor's benefits are paid to the spouses of retired, disabled, or deceased workers covered by Social Security. The spousal benefit equals up to 50% of a retired or disabled worker's benefit and the survivor's benefit equals up to 100% of a deceased worker's benefit.⁸

Under Social Security's dual entitlement rule, a person's spousal or survivor's benefit is reduced, dollar-for-dollar, by the amount of his or her own Social Security retired- or disabled-worker benefit but not below zero (i.e., a 100% offset). The difference, if any, is paid as a spousal or survivor's benefit and is added to the worker's Social Security benefit. In effect, the person receives the higher of the two Social Security benefit amounts, but not both.⁹

Enacted in 1977, the GPO is intended to replicate the dual entitlement rule for spouses and widow(er)s who receive pensions based on employment not covered by Social Security. The Social Security spousal or survivor's benefit is reduced by an amount equal to two-thirds of the noncovered government pension (i.e., a 67% offset).¹⁰

Social Security Beneficiaries Affected by Both the WEP and the GPO

Social Security beneficiaries will be affected by both the WEP and the GPO if they

• receive a noncovered government pension;
• are entitled to a WEP-reduced Social Security retired- or disabled-worker benefit; and
• are dually entitled to a Social Security spousal or survivor's benefit (hereinafter "spousal benefits") after the reduction of the retired- or disabled-worker benefit.¹¹

Table 1 illustrates four examples of how the WEP and the GPO affect Social Security benefits.

Affected by the WEP Only: Example 1

Retired workers are affected by only the WEP, and not the GPO, if they either are not entitled to Social Security spousal benefits or their spousal benefits are less than the WEP-reduced retirement benefits (i.e., the spousal benefit is reduced to zero after the dual entitlement rule). To illustrate, in example 1, the retired worker receives a pension based on noncovered employment ($900), thus the worker's benefit is computed based on the WEP formula ($700). The retired worker may also be entitled to a $500 spousal benefit before any reduction, but the spousal benefit is reduced dollar-for-dollar by the amount of the retired worker's benefit ($700), according to the dual entitlement rule, but not below zero. Therefore, this person's spousal benefit is reduced to zero after the dual entitlement reduction. The individual is not subject to the GPO because he or she does not receive a positive spousal benefit.¹² The individual's total retirement benefits equal $1,600, based on the WEP formula and a noncovered pension ($700+$900=$1,600).

Affected by the GPO Only: Example 2

Spouses and survivors are affected only by the GPO, but not the WEP, if they are not entitled to Social Security benefits based on their own earnings record, if any. To illustrate, in example 2, the beneficiary does not receive a Social Security worker's benefit ($0), but is entitled to a $1,000 spousal benefit. Because the beneficiary receives a noncovered pension benefit of $900, the spousal benefit is reduced by two-thirds of the noncovered pension ($600), resulting in a net spousal benefit of $400. This beneficiary receives total benefits of $1,300 from reduced Social Security spousal benefits and a noncovered pension ($400+$900=$1,300).

Affected by Both the WEP and the GPO: Examples 3 and 4

Social Security beneficiaries are affected by both the WEP and the GPO if they receive both WEP-adjusted retired-worker benefits based on their own work record and a reduced spousal benefit after the dual entitlement rule (i.e., dually entitled beneficiaries). The spousal benefit reduced by the dual entitlement rule is then subject to the GPO offset. In certain cases, the Social Security spousal benefit is high enough and remains positive after the GPO reduction (partial offset). To illustrate, in example 3, the person receives a noncovered pension of $900 and a WEP-reduced retired-worker benefit of $700. If the worker is also eligible for a $1,500 spousal benefit, this is reduced by the worker's benefit based on the dual entitlement rule ($700), and further reduced by two-thirds of the noncovered pension based on the GPO ($600), thus the net spousal benefit equals $200 ($1,500- $700-$600). The beneficiary's total benefits of $1,800 include a WEP-reduced retirement benefit, a net spousal benefit after offsets, and a noncovered pension ($700+$200+$900=$1,800).

In other cases, the Social Security spousal benefit is reduced to zero after the GPO reduction (fully offset). Example 4 illustrates a scenario in which a WEP-affected beneficiary receives a $1,000 spousal benefit, which is reduced by the worker's benefit based on the dual entitlement rule ($700), and the resulting $300 is further reduced by the GPO offset ($600). The net benefit for this beneficiary based on the spouse's working record ends with zero, because the spousal benefit cannot be reduced below zero. Therefore, this beneficiary will receive total benefits of $1,600 based on the WEP formula and the noncovered pension ($700+$900=1,600).

Number of Social Security Beneficiaries Affected by the WEP and the GPO

As of December 2023, about 2.5 million Social Security beneficiaries, or almost 4% of all beneficiaries, had benefits reduced by the WEP, the GPO, or both. Nearly 13% of those affected were subject to both provisions. Social Security beneficiaries who were affected by both the WEP and the GPO accounted for 43% of spouses and survivors affected by the GPO and 16% of beneficiaries affected by the WEP. Table 2 breaks down the affected beneficiaries by state and type of offset.

Selected Issues for Dually Entitled Beneficiaries Affected by the WEP and the GPO

This section highlights issues related to dually entitled Social Security beneficiaries affected by both the WEP and the GPO: Social Security overpayments to affected beneficiaries, the impact of the WEP and GPO on Social Security benefits and household wealth, and the effect of extending Social Security coverage through Section 218 agreements.

Overpayments to Those Affected by Both the WEP and the GPO

Overpayments to dually entitled Social Security beneficiaries affected by both the WEP and the GPO have been an issue for SSA since the provisions were implemented. The overpayments occurred in part because SSA did not properly impose the WEP and the GPO on dually entitled beneficiaries who also receive a pension based on noncovered employment.¹³ In an August 2018 report, SSA's Office of the Inspector General (OIG) identified 20,668 dually entitled beneficiaries in current-payment status whose WEP or GPO reductions were not applied properly. Among them, OIG estimated that SSA had overpaid approximately $349.5 million to 10,546 dually entitled beneficiaries whose WEP reduction was not applied properly and $320.6 million to 10,122 dually entitled beneficiaries whose GPO offset was not imposed correctly. OIG also estimated that SSA overpaid those beneficiaries an additional $231.9 million from 2013 to 2017, and that if no corrective action is taken, SSA might continue overpaying them by approximately $46.4 million annually.¹⁴ In 2018, OIG identified about 7,409 dually entitled beneficiaries with a GPO reduction on their spousal benefits but no WEP reduction on their retirement benefits and 8,127 dually entitled beneficiaries with a WEP reduction on their retirement benefits but no GPO offset on their spousal benefits.¹⁵

To prevent further improper payments to dually entitled beneficiaries who are subject to both the WEP and the GPO, in September 2018, SSA planned to generate system alerts for individuals who apply for retirement and spousal benefits when pension information is already available. OIG indicates that the planned alterations to the system, if implemented properly, might effectively prevent additional WEP and GPO overpayments.¹⁶ As of the date of this report, OIG has not published an audit update on this issue.

Improper payments to Social Security beneficiaries affected by the WEP and the GPO also occurred because some beneficiaries fail to report receipt of or changes in their pensions based on employment not covered by Social Security.¹⁷ If a beneficiary is receiving a noncovered pension based on his or her own employment, the beneficiary must provide evidence from the employer or pension-paying agency (e.g., an award letter) that shows the gross periodic pension amount,¹⁸ including the effective date and expected future pension increases.¹⁹

Several proposals have been made to improve SSA's collection of pension information from states and localities for administering the WEP and the GPO. For example, the President's FY2021 budget included a proposal for up to $70 million for administrative expenses, $50 million of which would have been available to the states, to develop a mechanism to facilitate reporting of information about pensions based on noncovered employment.²⁰ SSA also requested a data collection or data match with the Internal Revenue Service (IRS) to provide noncovered pension information from the IRS Form 1099-R. IRS indicated that although it is authorized to share information with SSA for administration of Supplemental Security Income, it is not permitted to disclose noncovered pension information to SSA for administration of Social Security.²¹

Impact on Social Security Benefits and Household Wealth

The WEP and the GPO reduce the Social Security benefit received by either member or both members of a couple within a household, and have the largest impact on households affected by both provisions. One study found that the WEP and the GPO, on average, reduced the present value of lifetime Social Security benefits by about 20% among households affected by either provision and by another 10% among households affected by both provisions.²² In this study, the households affected by both the WEP and the GPO included those in which either member was affected by both provisions or one member was affected by the WEP and the other was affected by the GPO. The study found that the present value of lifetime Social Security benefits and total household wealth—including the present value of lifetime Social Security benefits, public pension benefits, and other pension benefits, as well as all other assets—were lower among households subject to both the WEP and the GPO than among households subject to either provision alone.

Effect of Extending Social Security Coverage to Noncovered Workers

About one-quarter of state and local government employees, or approximately 5.9 million individuals, are not covered by Social Security.²³ Social Security coverage may be extended to state and local government employees through a voluntary Section 218 Agreement between a state and SSA.²⁴ If a state or local government employee's position is covered under a public retirement system that provides a minimum retirement benefit comparable to Social Security retired-worker benefits,²⁵ Social Security coverage may be extended to those positions via employee referendums. If a majority of all eligible employees votes in favor of Social Security coverage, all current and future employees in positions under the public retirement system will be covered.²⁶

The adoption of a Section 218 Agreement during a worker's or a spouse's midcareer may cause some future (dually entitled) Social Security beneficiaries to become subject to the WEP and the GPO.²⁷ Table 3 illustrates an example of a worker's Social Security benefits with and without an extension of Social Security coverage on the worker's own employment. Without Social Security coverage, the worker in example 1 might have no Social Security retired-worker benefits ($0), and his or her Social Security spousal benefits ($1,000) would be reduced by the GPO (2/3 of noncovered pension = 2/3×$900=$600). In this example, the beneficiary would be affected by only the GPO. If the worker's position became covered by Social Security in midcareer, the Social Security retirement benefits based on his or her own earnings record would become positive (assumed to be $450) and the noncovered component of the pension would decrease accordingly ($450) to reflect fewer years of noncovered employment (example 2). This individual would be subject to both the WEP and the GPO. Consequently, the beneficiary would become dually entitled to both Social Security retirement benefits and spousal benefits, and the spousal benefits would be reduced by both the dual entitlement rule ($450) and the GPO (2/3 of noncovered pension=2/3×$450=$300).

Table 4 illustrates another example of the Social Security and pension benefits of a beneficiary whose spouse becomes covered under Social Security in midcareer. The beneficiary is assumed to receive Social Security retirement benefits based on his or her own covered earnings and a pension benefit based on noncovered employment, which makes the beneficiary subject to the WEP (example 1). Extending the spouse's Social Security coverage would increase the before-offset spousal benefits from zero to positive, which consequently would result in the beneficiary becoming dually entitled (examples 2 and 3). In example 2, the Social Security spousal benefits ($1,000) would be reduced by the worker's own Social Security benefit under the dual entitlement rule ($600). The Social Security spousal benefits would be further reduced by the GPO (2/3 of noncovered pension=2/3×$900= $600), and result in a net spousal benefit of zero (because the spousal benefit cannot be reduced below zero). In example 3, the Social Security spousal benefit ($1,300) is higher than the combined benefit reductions from the dual entitlement rule ($600) and the GPO ($600), thus resulting a net spousal benefit of $100. In all three examples, the beneficiary is affected by both the WEP and the GPO.

Although a Section 218 Agreement may result in some potential beneficiaries being subject to both the WEP and the GPO, such an extension of Social Security coverage may also have a reverse effect—future Social Security beneficiaries who might be affected by both provisions without the Section 218 Agreement might become subject to only one provision with such an agreement. For example, a potential dually entitled beneficiary subject to both the WEP and the GPO might be exempted from the GPO if he or she switched from a noncovered position to a covered position and stayed in that covered position for at least five years.²⁸