In summary, Social Security does not cover about one-fourth of public
employees, for various historical reasons. As a result, these employees
do not pay Social Security taxes on earnings from their noncovered
jobs. Nevertheless, they can still be eligible for Social Security
benefits based on their spouses' or their own earnings in covered
employment. Currently, Social Security has two provisions to address
the resulting fairness issues. The Government Pension Offset (GPO)
affects spouse and survivor benefits, and the Windfall Elimination
Provision (WEP) affects retired worker benefits. Both provisions reduce
Social Security benefits for those who receive noncovered pension
benefits. However, the Social Security Administration (SSA) cannot
effectively and fairly apply these provisions because it does not have
access to complete and accurate information on receipt of such
noncovered pension benefits. Implementation of some of our
recommendations has improved the availability and tracking of key
information for federal retirees, which we estimate will save hundreds
of millions of dollars. However, Congressional action is still needed
to improve access to information on state and local government
pensions.
In recent years, various Social Security reform proposals that would
affect public employees have been offered. Some proposals specifically
address the GPO and the WEP and would either revise or eliminate them.
While we have not analyzed these proposals, we believe it is important
to consider both the costs and the fairness issues they raise. Still
other proposals would make coverage mandatory for all state and local
government employees. According to Social Security actuaries, doing so
for all newly hired state and local government employees would reduce
the 75-year actuarial deficit by about 11 percent. It could also
enhance inflation protection, pension portability, and dependent
benefits for the affected beneficiaries, in many cases. However, to
provide for the same level of retirement income, it could increase
costs for the state and local governments that would sponsor the plans.
Moreover, the GPO and the WEP would continue to apply for many years to
come, even though they would become obsolete in the long run.