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Caught Between Pension Plans, Some Retirees See Less Social Security
By Gene Meyer, Knight Ridder Newspapers
June 26, 2005
Al Nelson of Olathe, Kan., changed retirement systems when he changed careers, and that's caused financial headaches now that he no longer works.
Kansas City, Mo. - Al Nelson proudly served the United States as a soldier for 20 years.
Then, for 25 years after that, he delivered mail to neighborhoods he still describes with affection.
In January, Nelson, 65, of Olathe, Kan., discovered that because of a quirk in the nation's pension laws, his career change is costing him about 40 percent of the Social Security benefits he's earned in his lifetime.
"Fair? I don't think so," said Nelson, who is urging President Bush, Congress and anyone else involved in shaping public policy to correct what many people say is a fundamental inequity in the nation's pension system.
Nelson is one of perhaps 700,000 people whose retirement incomes are tangled in red tape that was intended in the 1980s to align public-service pensions more closely with Social Security.
The Social Security Administration estimates that about 159 million of the nation's jobs, or 96 percent of the total, are covered by Social Security. The remaining jobs are predominantly teachers, firefighters, police officers and other government workers whose employers opted out of Social Security coverage.
Many workers have divided significant parts of their working lives between the two systems. Some exempted workers moonlight on jobs that are covered. Others, like Nelson, move from one system to the other when they change careers. These are the workers most likely to face cuts in the benefits they earn.
And their number could grow dramatically depending on how efforts to change Social Security unfold in Washington.
One idea is bringing more contributions into the system by expanding coverage to about 4 million workers at state and local government agencies that don't participate in Social Security. That could expose 4 million people to the federally mandated benefit reductions that reduced Nelson's retirement income.
By 1982, federal lawmakers were working to narrow the differences and to relieve budget pressures on the retirement system by switching more government workers into Social Security-covered plans. They created two tools that were intended to keep retirees covered by both plans from profiting unfairly.
The first tool was the government-pension offset, or GPO, which reduces a widowed spouse's potential Social Security benefits by two-thirds if the partner received pension payments from a non-Social Security plan.
The second was the windfall-elimination provision, or WEP, which uses a formula to cut Social Security pension benefits by about 40 percent for retirees who also get pension checks from a non-Social Security plan.
To retirees such as Nelson, the GPO and WEP seem more like meat axes than tools, however.
"We're being robbed of benefits we earned," Nelson said.
In 1958, the then-18-year-old Nelson joined the Army, barely a year after Congress voted the nation's soldiers, sailors, Air Force and Marines into the Social Security system.
Nelson and his family lived and worked many places in the United States and overseas in the following 20 years.
More to the point for Social Security calculations, he was also building a history of contributions into the system that was twice as long as the minimum 40 calendar quarters needed to qualify for early-retirement benefits at age 62 or full benefits at 65.
"During my last year of military service in 1978, I had to make a decision," Nelson said.
Theoretically, at least, he could leave the military, start collecting a full Army pension and coast for 25 years until his full Social Security benefits kicked in, too.
"However, with a wife and three children, that wasn't going to happen," he said.
"But my uncle was working for the U.S. Postal Service at the time and making pretty good money, so I decided to take the test and try to carry mail for a living," he said. "Civil-service retirement looked good."
Postal workers and many other government workers weren't covered by Social Security when Nelson stepped out on his first mail route. They were covered by the old Civil Service Retirement System, known as CSRS in government shorthand.
When the Postal Service began switching to the Social Security-covered Federal Employees Retirement System, or FERS, in the early 1980s, civil-service workers were allowed to choose whether to stay with the old system or switch to the new one.
"I stayed. I did the numbers, and there didn't seem to be much advantage to switching," Nelson said. "My intention was to work the rest of my years in the Postal Service, file for my earned benefits with Social Security and have a semicomfortable retirement," he said.
On Jan. 5, Nelson applied for what he thought was going to be a $1,100-a-month Social Security benefit, based on the money Uncle Sam collected from 20 years of his Army pay.
"The windfall-elimination provision was a major factor and skimmed approximately $300 right off the top of my benefits," Nelson said. "And if I predecease my wife, she probably will be caught by the government-pension offset."
Medicare Part B insurance premiums are going to take an additional $78.20 a month from Nelson's Social Security benefits, leaving barely more than $600 of the $1,100 he first expected, plus a combined $2,380 a month in military and Postal Service retirement benefits.
There is a solution to the problem, some experts say.
Retirees such as Nelson, and groups such as the National Education Association, the National Active and Retired Federal Employees Association, and the AFL-CIO's American Federation of State, County and Municipal Employees want the WEP and GPO repealed.
Federal officials, including Social Security Commissioner Jo Anne Barnhart, are cool to that idea. Eliminating WEP and GPO would treat government workers more favorably than others doing comparable work, Barnhart has told congressional panels looking into the issue from time to time.
Plus, repealing the provisions would be a major change that would be more appropriate to consider along with other changes under discussion for strengthening and protecting the system, Barnhart said.
Legislation known as the Social Security Fairness Act of 2005, to repeal the provisions, has been introduced both in the House, with 245 co-sponsors, and the Senate, with 15 co-sponsors.
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