Upset about offsets: Bob and Carol and Ted and Alice

Do any of you remember the movie Bob & Carol & Ted & Alice? It came out in 1969 and starred Robert Culp and Natalie Wood as a trendy West Coast couple who were trying to talk a not-so-hip, straight-laced couple, played by Elliott Gould and Dyan Cannon, into a wife-swapping arrangement.

So, what does wife- swapping have to do with Social Security? Well, nothing, of course. (Unless there are some parts of the law I’m still not familiar with!) But I’m using these two couples (sans their marital dalliances) to help explain a law that frustrates and upsets a lot of my readers.

I’m talking about the Government Pension Offset (GPO) law that affects teachers in several states as well as other public employees who spend the bulk of their careers in jobs not covered by Social Security.

In a nutshell, that law says that if you will get a pension from a job not covered by Social Security, that pension will offset any benefits you might be due on your spouse’s Social Security record. The Social Security Administration must deduct an amount equal to two-thirds of your government pension from any wives’, husbands’, widows’ or widowers’ benefits you might be due from Social Security.

Note: This offset affects only the spouse’s benefit you might be due on your husband or wife’s Social Security record. It does not affect his or her benefit. In other words, even though you are due a teacher’s pension or government pension, your spouse will get his or her full Social Security retirement benefit. It is your potential spousal benefit on your husband or wife’s Social Security record that is affected by the Government Pension Offset.

So why is there an offset? Because benefits that Social Security pays to wives, husbands, widows and widowers are “dependents’” benefits. These benefits were established in the 1930s to compensate spouses who stayed home to raise a family and who were financially dependent on the working spouse.

But as more and more couples both worked, they each earned their own Social Security retirement benefits. The law has always required the SSA to offset a Social Security retirement benefit against any dependents’ benefits. In other words, if a woman worked and earned her own $1,800 monthly Social Security retirement benefit but was also due a $1,500 wife’s benefit on her husband’s Social Security record, the SSA could not pay that wife’s benefit, because her own Social Security benefit offsets it. But if that same woman was a teacher who did not pay into Social Security and who earned an $1,800 teacher’s pension, there was no offset, and the SSA was required to pay her a full wife’s benefit in addition to her government pension.

The Government Pension Offset rule exists simply to ensure that everyone is treated fairly.

Many teachers and government employees affected by the government pension offset think the law is unfair. They believe they are being cheated out of Social Security benefits that everyone else gets. But they are wrong. To explain that, let’s get back to Bob and Carol and Ted and Alice. Let’s say they are neighbors and live in a nice suburb of Dallas. And, so I don’t have to get into any messy calculations involving early retirement, let’s say they all are over full retirement age.

Bob and Carol both worked all their lives. They worked at jobs that were covered by Social Security. In other words, Social Security taxes were deducted from both their paychecks.

Neighbor Ted also worked at a job covered by Social Security. But his wife, Alice, was a teacher in Dallas. Texas teachers pay into the Texas Teacher’s Retirement System, but they do not pay into Social Security.

Bob retired and is getting $3,200 per month in Social Security retirement benefits. Carol is getting a Social Security retirement pension of about $2,000 per month. Carol is technically due 50% of Bob’s rate, or $1,600 in spousal benefits. But she can’t get anything because her own retirement benefit offsets any wives’ benefits she might have been due on Bob’s record.

Across the street (and to keep my math simple), let’s say Ted is also getting $3,200 per month from Social Security. And let’s also say that Alice is getting a $2,000 per month retirement pension, but hers comes from the Texas teachers’ system, not Social Security. Before the GPO law was in place, Alice would have received a $1,600 dependent wife’s benefit from Social Security in addition to her full teacher’s pension. Even with the GPO law, only two-thirds of her teacher’s pension, or $1,320, must be used to offset her spousal benefit. That means that Alice, the teacher, will still get $280 in spousal benefits from Ted’s record. ($1,600 minus $1,320 equals $280.) Remember, across the street, Social Security recipient Carol gets nothing.

Now let’s take things a step further. Let’s say that all the wife-swapping and other marital shenanigans caused both Bob and Ted to die from heart attacks. So now Carol and Alice are due widow’s benefits. Carol is going to get $1,200 in widow’s benefits because her own $2,000 retirement pension must be deducted from her potential $3,200 widow’s rate.

But Alice, the teacher, comes out a little better. Once again, only two-thirds of her teacher’s pension, or $1,320, is used to offset her widow’s rate. So, Alice will end up with $1,880 in widow’s benefits, compared to Carol’s $1,200 rate.

Yet, Alice is mysteriously upset because she thinks the Government Pension Offset law is cheating her out of some of her spousal or widow’s benefits. She thinks she and other teachers are being singled out for Social Security penalties that apply to no one else. What she doesn’t understand is that all retirement pensions offset spousal benefits and that the GPO law actually cuts her a deal with only the two-thirds offset.

If you have a Social Security question, Tom Margenau has two books with all the answers. One is called Social Security – Simple and Smart: 10 Easy-to-Understand Fact Sheets That Will Answer All Your Questions About Social Security. The other is Social Security: 100 Myths and 100 Facts. You can find the books at Amazon.com or other book outlets. To read past columns by Margenau, visit www.creators.com.