How a Government Pension Can Cut Your Social Security Benefits

If you work as a public service employee who will receive a government pension and you also qualify for Social Security retirement benefits, you might be “unpleasantly” surprised to learn that you will not get to collect the full amount of both when you retire one day. Many people consider it unfair that the government will take away something they worked years to earn. There are many people who are unaware of how a government pension can cut your Social Security benefits, and they are counting on receiving both sources of income when they retire.

Let’s say you worked as a teacher throughout your career. You worked enough years to qualify for a teacher’s pension from the government. You did not have to pay Social Security taxes on those earnings to qualify for the pension. You also worked a side job in the private sector. Your employer withheld Social Security taxes from your second job paycheck. You worked in the private sector long enough to qualify for Social Security retirement benefits.

When you retire, you will not receive both your teacher’s pension from the government and the full amount of Social Security retirement benefits that you qualify for from your second job. If you did not work a second job that paid into the Social Security system, but you qualify for Social Security retirement benefits based on the earnings record of your spouse, you will not receive that full amount either.

There are two federal rules that will take away a chunk of your retirement benefits:

The Windfall Elimination Provision (WEP) applies to people who receive government pensions. This law changes the amount you will receive, when you apply for Social Security retirement, spousal, or disability benefits.

In response to the argument that reducing these benefits because of the government pension is unfair, proponents of the rule say that WEP actually helps to preserve a basic assumption that underlies Social Security. This assumption is that people who did not earn much money throughout their careers, should receive a higher amount of benefits relative to their income than people who were high earners.

Since the work you did that qualified you for the government pension did not count toward Social Security, the amount of earnings you had in your private sector job makes it appear, incorrectly, that you were a low earner throughout your career. Because your total earnings in your government and private sector job would keep you out of the low earner category, you should not receive the extra help that a low earner needs.

If you fall under the WEP rule, the Social Security Administration can only reduce your Social Security retirement benefits, by up to half of the amount of your government pension. Of course, if you have a substantial government pension and would qualify for a small Social Security retirement check, half of your government pension could completely wipe out your Social Security check.

It is important to understand that WEP does not apply to survivor benefits. The second rule that applies to government pensions and Social Security benefits, however, could reduce the amount of Social Security payment that your dependents would receive in survivor benefits.

The Government Pension Offset (GPO) applies to people who qualify for Social Security benefits through their spouse’s earnings history and have a government pension based on their own job. In this situation, the government can reduce your Social Security spousal or survivor benefits by up to two-thirds of the amount of your government pension. As with the WEP rule, the GPO can reduce your Social Security benefit to nothing.

Your local elder law attorney can answer your questions about government pensions and Social Security.

References:

AARP. “Why Public Servants Feel Cheated by Social Security.” (accessed February 28, 2019) https://www.aarp.org/retirement/social-security/info-2019/public-servant-pensions.html

Suggested Key Terms: government pensions and Social Security, how government pension affects Social Security benefits

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