Of the  workers in the roughly 2,300 separate state and local retirement plans  nationwide, about one-third are not covered by Social Security. Nationwide Extent of Transfers to Avoid the GPO Unknown, but Expected to Grow

While we could not definitively confirm the extent nationwide that  individuals are transferring positions to avoid the GPO, we found that  4,819 individuals in Texas and Georgia had performed work in Social  Security-covered positions for short periods to qualify for the GPO last-day  exemption. SSA officials also  acknowledged that use of the exemption might be possible in some of the  approximately 2,300 state and local government retirement plans in other  states where such plans contain Social Security-covered and noncovered  positions. In most schools, teachers typically worked a single day in a nonteaching  position covered by Social Security to use the exemption. Officials told us that teachers generally agreed to work for  approximately 1 year in another teaching position in a school district  covered by Social Security to use the GPO exemption. Cost of Transfers to the Social Security Trust Fund is Growing, but Options Exist to Address Potential Abuse

The transfers to avoid the GPO we identified in Texas and Georgia could  increase long-term benefit payments from the Social Security Trust Fund  by about $450 million. 743, is to change  the last-day provision to a longer minimum time period. The second option our report identified is to use a proportional approach  to determine the extent to which the GPO applies. Conclusions

The GPO “loophole” raises fairness and equity concerns for those  receiving a Social Security pension and currently subject to an offset of  their spousal Social Security benefits. The exemption allows a select group  of individuals with a relatively small investment of work time and only  minimal Social Security contributions to gain access to potentially many  years of full Social Security spousal benefits. While this currently represents a relatively small  percentage of the Social Security Trust Fund, costs could increase  significantly if the practice grows and begins to be adopted by other states  and localities. Considering the potential for abuse of the last-day exemption and the  likelihood for its increased use, we believe timely action is needed.
Why GAO Did This Study

The Government Pension Offset (GPO) exemption was enacted in 1977 to equalize the treatment of workers covered by Social Security and those with government pensions not covered by Social Security. Congress asked GAO to (1) assess the extent to which individuals retiring from jobs not covered by Social Security may be transferring briefly to covered jobs in order to avoid the GPO, and (2) estimate the impact of such transfers on the Social Security Trust Fund.

What GAO Found

Because no central data exists on use of the GPO exemption by individuals in approximately 2,300 state and local government retirement plans nationwide, GAO could not definitively confirm that this practice is occuring in states other than Texas and Georgia. In those two states, 4,819 individuals had performed work in Social Security-covered positions for short periods to qualify for the GPO last-day exemption. In Texas, teachers typically worked a single day in nontechnical positions covered by Social Security, such as clerical or janitorial positions. In Georgia, teachers generally agreed to work for approximately 1 year in another teaching position in a school district covered by Social Security. Officials in both states indicated that use of the exemption would likely continue to grow as awareness increases and it becomes part of individuals' retirement planning. For the cases GAO identified, increased long-term benefit payments from the Social Security Trust Fund could be $450 million over the long term and would likely rise further if use of the exemption grows in the states GAO visited and spreads to others. SSA officials acknowledged that use of the exemption might be possible in other state and local government retirement plans that include both those positions covered by Social Security and those not. The GPO "loophole" raises fairness and equity concerns for those receiving a Social Security pension and are currently subject to the spousal benefit offset. In the states we visited, individuals with a relatively minimal investment of work time and Social Security contributions can gain access to potentially many years of full Social Security spousal benefits. The last-day exemption could also have a more significant impact if the practice grows and begins to be adopted by other states and localities. Considering the potential for abuse, our report presented options for revising the GPO exemption, such as changing the last-day provision to a longer minimum time period or using a proportional approach based on the number of working years spent in covered and noncovered employment for determining the extent to which the GPO applies.