Offsets and windfalls

No doubt for some of the 500 people at Bangor High School last week hearing about a government pension offset and windfall elimination provision was something of a shock. But the pension losses, created by Social Security changes in 1977 and 1983, have been around for years and, in part because of their complexity, are likely to be around for at least a couple more. They shouldn’t be. The offsets hurt state retirees in unanticipated ways and need to be modified.

Hosts of the Bangor meeting, which included Sen. Susan Collins and Rep. John Baldacci, who are co-sponsoring bills to eliminate the pension provisions, told the public employees and their spouses just how much they could be losing of the money they have “earned” through Social Security. Earned is not the best word, however: Some people get more out of Social Security, interest included, than they ever put in; some get less. The point of the program is not to act like a bank account but as a communal hedge against poverty. Another argument for modifying or removing the offsets might be that they produce unintended consequences – lesser benefits for workers in 15 states (Maine included), who are harmed because of their state retirement systems; the same labor and contributions are rewarded at a higher benefit level in the other 35 states and among private-sector workers.

The pension offset came about in 1977 because federal workers before then could receive both a full government pension and full spousal Social Security benefits, something spouses who both pay into Social Security did not get. Congress believed public retirees who got their own pension would be less dependent on the spousal benefit. The windfall provision, similarly, was created in ’83 after Congress observed that, because low-wage earners received a more generous portion of Social Security relative to their incomes and most of the wages of a public employee were not accounted for in Social Security, the employees, upon retirement, received total benefits in excess of what private-sector employees would receive.

This is all fine in theory, but not so good when it comes to specific employees. The pension offset, for instance, reduces an employee’s spousal or survivor Social Security benefit by two-thirds of the worker’s government pension. This two-thirds reduction can wipe out a benefit entirely or make it so small that it is meaningless. The windfall elimination provision whacks 60 percent off benefits for those with fewer than 20 years of “substantial” employment under Social Security and cuts a lesser but still appreciable amount for those with 20 to 29 years of service. Under some circumstances, particularly for employees below 20 years, the refigured amount falls below the difference between their benefits and what everyone else gets. The unfairness among states makes the situation worse because it penalizes employees for living in one of the 15 states with state retirement systems. Those employees do not have the option of choosing which system to join – it’s the state system or pack your bags and move elsewhere, which some do.

Certainly in an age of high-speed computers it is less important to legislate whether a benefit is reduced by a given percentage generally, which is certain to produce unintended losers, and a lot more fair to state simply that public employees will be treated the same as private-sector workers and then let the computers figure out the level of benefit due for each retiree. If the object is fairness – equal total benefit treatment for a given level of contributions, which is what at least some public employees were asking for at the Bangor meeting – it is difficult to see why any member of Congress would object.