What Happens to Your Social Security When You Receive a Retirement Pension?

Government Pension Offset

Government Pension Offset (GPO) affects Social Security recipients who receive government pensions based on government employment that was not covered by Social Security. If the recipient's Social Security benefit is based on earnings of a spouse rather than his own Social Security-covered earnings, two-thirds of the government pension offsets the Social Security benefit. For example, if a recipient of spouse or surviving spouse Social Security benefits also receives a government pension of $900, two-thirds of the pension--$600--reduces the Social Security benefit payable by that amount. Social Security will not offset its benefits if the government pensions are from other countries, the Veterans' Administration or the Railroad Retirement Board.

The Windfall Elimination Provision (WEP) affects recipients whose Social Security benefit and government pension are both based on their own work. Under normal benefit computation rules, Social Security determines the individual's average monthly earnings and then divides the average into three tiers. In 2010, the lowest tier includes those with a maximum average lifetime monthly earnings of $761, the second highest tier had a limit of $4,586 in monthly earnings. Any average monthly earnings above these two tiers form the third tier. The Social Security benefits are paid at a rate of 90 percent of earnings in the first tier, 32 percent of the second and 15 percent of any earnings in excess of the first two levels. However, the WEP computation decreases benefits for the first years after retirement, then increases them over time.

Prior to January 1984, all federal employees paid into the Civil Service Retirement system instead of Social Security. Beginning January 1983, newly hired federal employees paid into both Social Security and Civil Service. Beginning in 1987, all newly hired federal employees no longer belonged to the Civil Service but to the Federal Employees Retirement System (FERS)--which includes Social Security coverage. Federal employees hired before 1987 who did not switch to FERS and who worked under the interim federal pension system, which existed from 1983 through 1986, receive Social Security offset. The amount of the Social Security benefits attributable to the few years of federal employment covered under Social Security reduces the Civil Service pension when the employee reaches Social Security retirement age of 62.

If an employee withdraws all contributions--including interest accrued--from his pension plan before he is potentially eligible for benefits, WEP does not apply. If, however, the employee withdraws both employer and employee contributions in a lump sum, or withdraws contributions after she is potentially eligible for the pension, Social Security may use WEP computation rules to calculate her own Social Security benefit. Government Pension Offset does not apply if the employee withdraws all her own contributions plus interest regardless of whether she was eligible for a pension at the time. If, however, the employee withdraws both employer and employee contributions to a pension plan or system, Social Security may still impose GPO based on what the monthly pension would have been if the employee had not withdrawn contributions.