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A reader from Colorado asks if her pension benefit will reduce her spouse's Social Security benefit.
"No one can answer this question: I receive a PERA pension, and my spouse gets half after I die. My spouse, who is 69, receives Social Security. Will getting half my pension affect his Social Security benefit?"
I'm surprised that "no one can answer this question," except to say that WEP and GPO are confusing elements for many people in the Social Security system. The Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which we discussed in other posts, were created to remove an unfair advantage in how Social Security calculates benefits when "non-covered pensions" are involved.
Non-covered pensions are paid by employers that do not withhold Social Security taxes from your salary, typically if you work for a state or local government or a non-U.S. employer. You pay into an alternative pension instead of Social Security.
I will focus on GPO because that's the essence of your question. If you participate in a non-covered pension and receive – or are eligible to receive – a spousal or a survivor Social Security benefit, that benefit you might otherwise be entitled to will be reduced by $2 for every $3 of the amount of your non-covered pension.
Let's put some numbers to it so it's easier to follow. Let's say you have a government pension of $6,000 monthly. (That might seem big to some of you, but there are a lot of pensions out there at that level.) And let's say you didn't pay into Social Security, so it's a non-covered pension. If you are married to someone who has a traditional Social Security retirement benefit, as in your case, you would be eligible for a spousal benefit while you're still married and that spouse is still alive. If that spouse dies, you're potentially eligible for a survivor benefit. Whatever the Social Security benefit, Social Security will reduce it by $2 for every $3 of your non-covered pension amount.
So, in my example, they will reduce your spousal or survivor benefit by $4,000. With the size of the maximum Social Security benefits today, it's impossible to have a spousal benefit at $4,000. For it to be that large, your spouse would have to have a PIA of $8,000, and no one's PIA is that big yet, although it will get there over time because of inflation. However, it is possible to have a survivor benefit higher than $4,000. Quite a few people are delaying benefits to age 70, which can create a Social Security benefit above $4,000.
Back to our example. Let's pretend your spouse is collecting a Social Security benefit of $4,500, and you are not participating in a non-covered pension. When he dies, you would have the right to step in and receive a survivor benefit equal to his $4,500 retirement benefit. However, because we're looking at a situation where you have the $6,000 non-covered pension and GPO kicks in, that $4,000 GPO offset (two-thirds of $6,000) will eliminate $4,000 of the $4,500, and you'll only receive $500. But don't feel too bad for yourself in my hypothetical example: You're still getting $6,000 of your own pension – for a total of $6,500.
Some people point to that as unfair. In my opinion, it's not unfair. After all, if you both had Social Security, you wouldn't get any of his benefits because your benefit is bigger than his. Remember that with Social Security, you only keep one retirement benefit. In my hypothetical example, you got to keep $500 of his benefit, which you wouldn't have if you were on Social Security.
Now, if your spouse who is collecting Social Security dies first, you may or may not get any of his Social Security benefits because of the GPO offset of $2 off for each $3 of your non-covered pension amount.
So that's the essence of how GPO works.
I admit that you might make a case for GPO being unfair in certain circumstances, but it is not as controversial and possibly unfair as WEP. However, that's not what we're talking about today.
Now, to your question. You receive a pension from the Colorado Public Employees' Retirement Association (PERA). You have chosen the option where your spouse gets 50% of your PERA pension when you die. You asked, "Will getting half my pension affect his Social Security benefit?"
GPO (and WEP, for that matter) only applies to the person who originally participated in the non-covered pension: in this case, you. It doesn't apply to a beneficiary as long as that person was not participating in a non-covered pension – and you didn't mention that your husband was. He is on Social Security alone.
Therefore, he will have the right to receive that 50% survivor payout from PERA, and there will be no reduction in his Social Security benefit. You obtained the classification as a participant by generating the non-covered pension in the first place, but the classification does not transfer to your beneficiary. Social Security will look at your husband independently and ask, "Well, did he have a non-covered pension?" And for him, the answer is no, so there are no GPO or WEP implications. He'll still collect 100% of whatever he is collecting, plus 50% of the pension.
So, a bit of good news. For one, I was able to answer the question. And two, it was the answer you probably hoped to hear: your husband will not be affected by getting half of your pension if you die first.
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