Changes in Social Security to Impact Public Employers and Employees: New Legislation Designed to Prevent Fraud and Abuse in the Social Security Program Has Important Implications for Government Employers and Employees

By Berger, Barrie Tabin | Government Finance Review, August 2004 | Go to article overview

Changes in Social Security to Impact Public Employers and Employees: New Legislation Designed to Prevent Fraud and Abuse in the Social Security Program Has Important Implications for Government Employers and Employees


Berger, Barrie Tabin, Government Finance Review


On March 2, President Bush signed into law the Social Security Protection Act of 2004 (Public Law 108-203). While the legislation is primarily intended to reduce fraud and abuse in the Social Security and Supplemental Security Income programs, it impacts state and local government employers and their employees in several ways. Specifically, the new law closes the Government Pension Offset loophole; requires public employers to disclose to newly hired employees that they are earning retirement benefits not covered by Social Security; and allows Louisiana and Kentucky the option to provide a divided retirement system.

As the legislation was being considered, public sector organizations met with Congressional staff to limit any new disclosure requirements that would impose financial and administrative burdens on state and local employers, public pension plans, and employees. While they succeeded in eliminating some of the more burdensome mandates included in earlier versions of the legislation, the final version does impose some new disclosure requirements on state and local employers. The Social Security Administration will soon issue regulations for the implementation of the new disclosure requirements. Working in concert with other state and local employers, national organizations, pension system administrators, and employee unions, GFOA will closely review these regulations to ensure that they are not overly burdensome or costly to public employers, or biased in their explanation of uncovered employment.

This article summarizes the newly enacted legislation and discusses its impact on public employers and employees. It is important to note that the legislation does not require that all public employees participate in Social Security. It does, however, make some important changes to existing law. These changes are discussed below.

THE GOVERNMENT PENSION OFFSET

The GPO formula reduces by two-thirds the spousal and survivor Social Security benefits paid to most retired public employees for employment not covered by Social Security. For example, if you receive a monthly pension benefit of $600, two-thirds of that amount ($400) must be deducted from your spousal/survivor Social Security benefit. Thus, if you are eligible for a $500 spouse's, widow's, or widower's benefit from Social Security, you will instead receive $100 per month ($500-$400 = $100). You will also receive your monthly pension benefit of $600, which will not be affected.

Prior to the enactment of the new legislation, public employees in jobs not covered by Social Security could avoid the GPO provision by working the last day of their careers in jobs covered by both Social Security and the retirement system paying their pension. For example, before the enactment of Public Law 108-203, teachers who had spent the majority of their careers in school districts that did not provide Social Security coverage could take positions in school districts providing Social Security for as little as one day and avoid any reduction in spousal/survivor Social Security benefits.

Under the new law, which will cover retirements that occur on or after July 1, 2004, public employees wishing to avoid the two-thirds reduction in spousal/survivor benefits will be required to spend the last five years of their employment in positions covered by both Social Security and the retirement system that will pay their pensions. This provision, estimated by the Congressional Budget Office to save the federal government $80 million over the next 10 years, will have implications for many public employees around the country. It will particularly affect teachers in Texas, who have taken advantage of the GPO loophole more than any other group in the country, according to a 2002 study by the U.S. General Accounting Office. Since Texas has some school districts in which non-teaching personnel are covered by Social Security, teachers have been able to transfer jobs for a day, pay a small sum into Social Security, and save potentially tens of thousands of dollars in retirement income. …

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