OPINION:
The House of Representatives is considering four different bills that would adjust the calculation of the windfall elimination provision, or WEP, and government pension offset, or GPO, rules of Social Security. The most popular version of these bills would cost the cash-strapped program $150 billion over the next decade.
Instead, lawmakers should consider reforming the entire concept of Social Security, which is failing retirees and falling short of achieving the program’s goals. A broader reform would streamline the process by enabling free-market principles to enhance the customer experience and responsibility to reduce the overhead of providing benefits.
The WEP/GPO rules are intended to preserve fairness for all Americans. They exist to ensure equitable treatment of different participants by ensuring that the program doesn’t overpay those retirees who have worked for an employer and have decided not to participate in Social Security.
In practice, however, these rules fuel resentment among older Americans who feel cheated, rightly or wrongly, by adjusting the size of their monthly Social Security checks. On top of that concern, these rules would likely cause excessive workloads for the Social Security Administration and generate even more improper payments.
Lawmakers should focus on the public image of the program, which has been passed from generation to generation on the basis of trust over nearly a century. Any hint of unfairness or cheating of retirees eats away at the very foundation of the program. So, for the program as a whole, nothing is as toxic as the perception of unfairness.
The question about the adjustments is not going away despite the active attention of lawmakers. Over many decades, Congress has been unable to find consensus on these rules. The Association of Mature American Citizens says: “More than a dozen reform bills related to WEP and GPO have surfaced in the last three sessions of Congress. None have made it past Committee assignment.”
Congress is spending too much energy on the fairness of the formula when it should be understanding why these rules create such chaos in the first place.
The most significant problem created by the rules is the lack of transparency. Under current law, workers sign a form when they are hired, but there is no requirement for the employer to disclose how the retirees’ Social Security benefits might be affected in the distant future. As a result, the retiree may not find out about the adjustment to their benefits until their first check arrives.
Incredibly, it is possible for a retiree who is well into retirement to find that their retirement plan has been scaled back by $500 a month.
These rules lack a basic alignment of cause and effect. The decision not to participate in Social Security is a business choice of the employer, one that creates a hazard for employees. It is only reasonable for the employer to protect the employee from the consequences.
To illustrate the concept of hazard, an employee who has earned a pension from work not covered by Social Security does not have the same right to claim spousal or widow benefits on the same terms as everyone else. The quirks of the GPO formula generate a significantly overstated adjustment for those retirees who claim survivor benefits prior to reaching full retirement age.
An audit by the Office of the Inspector General found that affected retirees who claimed benefits early lost, on average, more than $50,000 in lifetime benefits. Yet the employer has no responsibility to warn its employees, much less help them avoid the consequences of the quirk.
There is a simple solution: benefits portability. This change would allow a dual-entitled employee to choose which pension they wish to collect. In aggregation, the employee might choose to collect a single check from the employer or a single check from Social Security in an informed choice rather than one inflicted upon the unsuspecting retiree.
Believe it or not, the most valuable aspect of Social Security is the ability of workers to transfer their pension from employer to employer. State and local employees deserve no less. Allowing these workers to consolidate their benefits in a single pension would eliminate the need for the WEP/GPO entirely.
Even if the employee chooses to accept the WEP/GPO reductions, everyone wins, because giving workers a choice mitigates the resentment of the adjustment and ensures that no one gets a major surprise when they turn 67 years old.
Even better, this simple fix would prevent Congress from spending $150 billion more on the nation’s credit card.
• Brenton Smith (think@heartland.org) is a policy adviser with the Heartland Institute.
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