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A Social Security lesson for teachers
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It's once again time for me to turn the tables on my old teachers and ask them to take a seat and pay attention as I deliver my annual lecture on the Social Security offsets.

This lesson isn't directed at all teachers — just those in states where educators do not pay into Social Security. The two biggest such states are California and Texas, but there are a few others. And teachers really are not the only audience for this lecture. Anyone who works at a job that is not covered by Social Security (that's a little less than 10 percent of the population) is impacted by the same rules.

And because so many people don't understand these laws, they mistakenly think they are being singled out for Social Security reductions that don't impact anyone else. And they are simply wrong about that.

Folks who spend the bulk of their careers in jobs not covered by Social Security are potentially subject to a couple of offsets that impact either their own Social Security benefit (based on Social Security-covered work they did outside of their regular job) or any benefits they potentially might be due from their spouse's Social Security record. And by the way, as a retired federal employee getting a civil service pension, I, too, am impacted by both offsets. But because I understand the law, they make perfect sense to me, and I know they are fair. I will try to explain them to you.

One offset is called the windfall elimination provision. This is the one that impacts your own Social Security benefit. The other is called the government pension offset, or GPO, and it reduces any spousal benefits you might be due.

The key to understanding the windfall elimination provision is to realize that the word "social" in Social Security means something. Unlike private and other public sector pension plans, there are social goals built into the Social Security program. One of those goals is to raise the standard of living of lower-income workers in retirement. This is accomplished through a benefit formula that is designed to give lower-paid workers a better deal than their more highly paid counterparts. Very low-paid workers could get a Social Security benefit that represents up to 90 percent of their earnings. This percentage is known as a replacement rate. People with average incomes (the middle class) generally get a 40 percent replacement rate. Higher income people get a rate around 30 percent.

The problem is that people who spend the bulk of their working lives not paying into Social Security are automatically treated as low-income people by the Social Security Administration's computers. That's because there are zeros on their Social Security earnings record for every year they spent in their non-Social Security job. SSA's records won't show they were actually working at the other job and earning another pension. Instead, their Social Security earnings record simply shows gaps in their work history. So when figuring their Social Security retirement benefit, SSA's computers automatically use the formula intended to compensate a lower-income person.

But teachers, police officers, firefighters and other government employees generally can be classified as people with average incomes, so they should get the same Social Security replacement rate paid to all middle-class workers. That's why a modified formula is used to refigure their benefits and give them the proper — and fair — replacement rate. If you're an employee impacted by this law, that modified formula takes you from the 90 percent (poor person's) replacement rate to the 40 percent (middle-class person's) replacement rate, thus reducing estimated benefits by about half.

Like me, most career teachers and government employees generally have just barely over the qualifying 40 quarters (10 years) of Social Security covered work. But if you have 30 or more years of substantial Social Security earnings, the windfall provision won't apply and your benefit will not be reduced. If you have between 20 and 29 years of substantial earnings, your Social Security benefit will be only partially reduced. A chart giving a year-by-year breakdown of what the government considers substantial earnings is available at

The other rule that so many people misunderstand is the government pension offset, or GPO. In a nutshell, that law says that an amount equal to two-thirds of a non-Social Security-covered pension must be deducted from any Social Security dependent's benefits a person might be due. In effect, the law prevents most folks who work at jobs not covered by Social Security from collecting wife's, widow's, husband's, or widower's benefits from a spouse's Social Security record.

What these people don't realize is that the government pension offset law simply treats them the same way that all other working people have always been treated. In other words, if a woman who worked at a job that was covered by Social Security gets a Social Security retirement pension, that pension has always offset any spousal benefits she might have been due. Before the GPO law went into effect, people getting a non-Social Security pension were the only working people in this country who could get their own retirement pension AND a full dependent's benefit from Social Security.

And the GPO law actually gives these people a bit of a break. Social Security retirement pensions offset spousal benefits dollar for dollar. But a non-Social Security retirement pension causes only a three-for-two offset. In other words, for each $3 you get in a teacher's or other non-covered pension, you lose only $2 from Social Security spousal benefits.

Due to the space constraints of my column, this has been a VERY simplified explanation of a very complicated set of laws. To learn more about the government pension offset and the windfall elimination provision, send an email to me at and ask for a free digital copy of my pension offset fact sheet.