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This Congressional Budget Office staff memorandum examines the economic well-being of people likely to be affected by Social Security's provision for a government pension offset and analyzes options for changing the provision. It was prepared in response to a request from the Chairman of the Social Security Subcommittee of the House Committee on Ways and Means.

The memorandum was prepared by Murray N. Ross of CBO's Human Resources and Community Development Division and Paul Cullinan of the Budget Analysis Division under the direction of Nancy Gordon and Ralph Smith. Tahirih Senne Linton, Jacquelyn Vander Brug, and Karin Carr generated the data in the tables, and Kimberly Guise prepared the figures. Harriet Komisar provided valuable comments. Ronald Moore provided administrative assistance and prepared the final version of the manuscript.

Comments or questions regarding the analysis may be addressed to Murray Ross or Paul Cullinan.
 
 

SUMMARY

The government pension offset (GPO) is a provision of Social Security that reduces spousal or survivors' benefits payable to certain government retirees. The offset applies when the benefits are based on a spouse's earnings record and not the retiree's own earnings, when the retiree's work was mainly in government employment not covered by Social Security, and when the retiree does not meet any of the criteria for exemption specified by law. The GPO effectively treats two-thirds of the amount of government pension as equivalent to Social Security and causes spousal benefits to be reduced by that amount.

This memorandum describes the GPO, its impact on Social Security beneficiaries, how the economic well-being of government retirees compares with that of other retirees, and the impact of changing or eliminating the GPO. The key findings are as follows:

• The number of retirees whose Social Security benefits are reduced or eliminated by the GPO has grown over the past several years, reaching about 145,000 in December 1991. The number affected will continue to increase, with women making up an ever larger share of those affected.
  
  
• The average reduction experienced by affected beneficiaries was about $215 in 1991; about five of every six of those affected had their spousal benefits completely withheld.
  
  
• When both Social Security benefits and pensions are counted, government and private pension recipients have similar retirement incomes. Government pensions--especially federal pensions--are much larger than private pensions.
  
  
• Government retirees are less likely to live in low-income families than other retirees, especially those without private pensions.
  
  
• Eliminating the GPO would cost $3 billion over the 1993-1997 period. Lowering the offset rate to one-third (from the current rate of two-thirds) would cost $690 million over the same period, and lowering it to one-half would cost $400 million. Modifying the offset--say, by applying it only to government pensions and Social Security benefits that exceed some specified amount--would be much less costly and would generally target the benefits to retirees who are less well-off. Such a modification would, however, increase the complexity of the GPO.

This document is available in its entirety in PDF.