About One-Fourth of Public Employees Are Not Covered by Social Security

About one-fourth of public employees do not pay Social Security taxes on  the earnings from their government jobs. Even though noncovered employees may have many years of earnings on  which they do not pay Social Security taxes, they can still be eligible for  Social Security benefits based on their spouses’ or their own earnings in  covered employment. Provisions Seek Fairness but Pose Administrative Challenges

To address the fairness issues that arise with noncovered public  employees, Social Security has two provisions—GPO, which addresses  spouse and survivor benefits and WEP, which addresses retired worker  benefits. Both provisions depend on having complete and accurate  information that has proven difficult to get. Also, both provisions are a  source of confusion and frustration for public employees and retirees. As a  result, proposals have been offered to revise or eliminate both provisions. Under the GPO provision, enacted in 1977, SSA must reduce Social  Security benefits for those receiving noncovered government pensions  when their entitlement to Social Security is based on another person’s  (usually their spouse’s) Social Security coverage. Their Social Security  benefits are to be reduced by two-thirds of the amount of their  government pension. To administer these provisions,  SSA needs to know whether beneficiaries receive such noncovered  pensions. As a result, SSA cannot apply GPO and WEP for state and  local government employees to the same degree that it does for federal  employees. Critics of the measures contend that they are  basically inaccurate and often unfair. First, repealing these provisions would be costly in an environment where  the Social Security trust funds already face long-term solvency issues. Making coverage mandatory has been proposed in  the past to help address the program’s financing problems. According to  Social Security actuaries, doing so would reduce the 75-year actuarial  deficit by 10 percent. However, to provide for the same level  of retirement income, mandatory coverage could increase costs for the  state and local governments that would sponsor the plans. Moreover, if  coverage were extended primarily to new state and local employees, GPO  and WEP would continue to apply for many years to come for existing  employees and beneficiaries even though they would become obsolete in  the long run. Costs  could increase by as much as 11 percent of payroll for those states and  localities, depending on the benefit package of the new plans that would  include Social Security coverage.
Why GAO Did This Study

Social Security covers about 96 percent of all US workers; the vast majority of the rest are state, local, and federal government employees. While these noncovered workers do not pay Social Security taxes on their government earnings, they may still be eligible for Social Security benefits. This poses difficult issues of fairness, and Social Security has provisions that attempt to address those issues, but critics contend these provisions are themselves often unfair. Congress asked GAO to discuss these provisions as well as the implications of mandatory coverage for public employees.

What GAO Found

Social Security's provisions regarding public employees are rooted in the fact that about one-fourth of them do not pay Social Security taxes on the earnings from their government jobs, for various historical reasons. Even though noncovered employees may have many years of earnings on which they do not pay Social Security taxes, they can still be eligible for Social Security benefits based on their spouses' or their own earnings in covered employment. To address the issues that arise with noncovered public employees, Social Security has two provisions--the Government Pension Offset (GPO), which affects spouse and survivor benefits, and the Windfall Elimination Provision (WEP), which affects retired worker benefits. Both provisions reduce Social Security benefits for those who receive noncovered pension benefits. Both provisions also depend on having complete and accurate information on receipt of such noncovered pension benefits. However, such information is not available for many state and local pension plans, even though it is for federal pension benefits. As a result, GPO and WEP are not applied consistently for all noncovered pension recipients. In addition to the administrative challenges, these provisions are viewed by some as confusing and unfair, and a number of proposals have been offered to either revise or eliminate GPO and WEP. Such actions, while they may reduce confusion among affected workers, would increase the long-range Social Security trust fund deficit and could create fairness issues for workers who have contributed to Social Security throughout their working lifetimes. Making coverage mandatory has been proposed to help address the program's financing problems, and doing so could ultimately eliminate the need for the GPO and the WEP. According to Social Security actuaries, mandatory coverage would reduce the 75-year actuarial deficit by 10 percent. However, to provide for the same level of retirement income, mandating coverage would increase costs for the state and local governments that would sponsor the plans. Moreover, GPO and WEP would still be needed for many years to come even though they would become obsolete in the long run.