[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]




               SOCIAL SECURITY GOVERNMENT PENSION OFFSET

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 27, 2000

                               __________

                             Serial 106-102

                               __________

         Printed for the use of the Committee on Ways and Means


                   U.S. GOVERNMENT PRINTING OFFICE
68-333                     WASHINGTON : 2001



_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402


                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    Subcommittee on Social Security

                  E. CLAY SHAW, Jr., Florida, Chairman

SAM JOHNSON, Texas                   ROBERT T. MATSUI, California
MAC COLLINS, Georgia                 SANDER M. LEVIN, Michigan
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               BENJAMIN L. CARDIN, Maryland
KENNY HULSHOF, Missouri
JIM McCRERY, Louisiana


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of June 20, 2000, announcing the hearing................     2

                               WITNESSES

Social Security Administration, Jane L. Ross, Ph.D., Deputy 
  Commissioner for Policy........................................    13
Congressional Budget Office, Paul R. Cullinan, Ph.D., Chief, 
  Human Resources Cost Estimate Unit.............................    26

                                 ______

Coalition to Assure Retirement Equity, Frank G. Atwater..........    62
Jacksonville Police and Fire Pension Fund, John Keane............    56
Jefferson, Hon. William J., a Representative in Congress from the 
  State of Louisiana.............................................     6
John, David, Heritage Foundation.................................    58
National Association of Letter Carriers, AFL-CIO, Vincent R. 
  Sombrotto......................................................    52
National Association of Retired Federal Employees:
    Frank G. Atwater.............................................    62
    Ruth Pickard.................................................    65

                       SUBMISSIONS FOR THE RECORD

American Federation of State, County and Municipal Employees, 
  AFL-CIO, Charles M. Loveless, letter and attachments...........    78
Anderson, Thomas R., School Employees Retirement System of Ohio, 
  Columbus, OH, statement........................................    98
Association of Texas Professional Educators, Austin, Texas, Brock 
  Gregg, statement...............................................    78
Baldacci, Hon. John Elias, a Representative in Congress from the 
  State of Maine, statement......................................    80
California State Teachers' Retirement System, Sacramento, CA, 
  James D. Mosman, statement.....................................    80
Cek, Isabel M., College Park, MD, letter.........................    84
Cord, Donna, Las Vegas, NV, letter...............................    85
Delahunt, William D., a Representative in Congress from the State 
  of Massachusetts, statement and attachments....................    86
Grand Lodge, Fraternal Order of Police, Gilbert G. Gallegos, 
  statement......................................................    87
Gregg, Brock, Association of Texas Professional Educators, 
  Austin, Texas, statement.......................................    78
Hobson, Hon. David L., a Representative in Congress from the 
  State of Ohio, statement.......................................    88
Junell, Hon. Robert, National Conference of State Legislatures, 
  letter.........................................................    91
Kelley, Colleen M., National Treasury Employees Union, statement.    96
Loveless, Charles M., American Federation of State, County and 
  Municipal Employees, AFL-CIO, letter and attachments...........    78
Lyons, Kenneth T., National Association of Government Employees, 
  Alexandria, VA, statement......................................    88
Mosman, James D., California State Teachers' Retirement System, 
  Sacramento, CA, statement......................................    80
National Association of Government Employees, Alexandria, VA, 
  Kenneth T. Lyons, statement....................................    88
National Association of Police Organizations, Inc., Robert T. 
  Scully, statement..............................................    89
National Conference of State Legislatures, Hon. Robert Junell, 
  letter.........................................................    91
National Education Association, statement and attachment.........    92
National Treasury Employees Union, Colleen M. Kelley, statement..    96
Nolan, Susan, Newburgh, NY, statement............................    97
Piper, Irene, Bedford, IN, statement.............................    97
School Employees Retirement System of Ohio, Columbus, OH, Thomas 
  R. Anderson, statement.........................................    98
Scully, Robert T., National Association of Police Organizations, 
  Inc., statement................................................    89
Wagner, Anabel, Bedford, IN, statement...........................    99

 
               SOCIAL SECURITY GOVERNMENT PENSION OFFSET

                              ----------                              


                         TUESDAY, JUNE 27, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:00 p.m., in 
room B-318, Rayburn House Office Building, Hon. E. Clay Shaw, 
Jr. (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

FOR IMMEDIATE RELEASE

June 20, 2000

No. SS-19

                       Shaw Announces Hearing on

             the Social Security Government Pension Offset

    Congressman E. Clay Shaw, Jr., (R-FL), Chairman, Subcommittee on 
Social Security of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on the Social Security 
Government Pension Offset (GPO). The hearing will take place on 
Tuesday, June 27, 2000, in room B-318 Rayburn House Office Building, 
beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses are expected to include representatives from the Social 
Security Administration, the Congressional Budget Office, and Federal 
and State government employee associations. However, any individual or 
organization may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Many Federal, State, and local government employees are affected by 
a provision commonly known as the GPO which reduces their Social 
Security spouse benefit. The GPO was created in 1977 to address a 
perceived inequity in the law between the treatment of government 
workers and those covered by Social Security.
      
    Social Security pays retirement benefits to workers who pay into 
the system throughout their careers. It also pays spouse benefits to 
their husbands and wives. As a result, some married workers may qualify 
for two Social Security benefits: (1) a retirement benefit based on 
their own work, and (2) a spouse benefit based on the other spouse's 
work. However, Social Security will not pay both benefits in full. 
Instead, the spouse benefit is offset by the full amount of the 
retirement benefit. The rationale behind this ``dual entitlement rule'' 
is that spouse benefits are intended to provide a safety net to those 
who are financially dependent on their husbands or wives.
      
    Prior to 1977, government workers who paid nothing (or little) into 
Social Security could receive a full government pension plus a full 
spouse benefit from Social Security. In contrast, private-sector 
workers who paid into Social Security had their spouse benefits reduced 
or eliminated because of the dual entitlement rule. The GPO was created 
in 1977 to help address this situation. Under the GPO, a worker's 
Social Security spouse benefit is reduced by two-thirds of the value of 
his or her government pension. This attempts to equalize the treatment 
between government workers and private-sector workers. However, many 
government employees believe the provision is unfair and arbitrary. 
Legislative proposals have been introduced which would modify the way 
benefits are calculated for those affected by the GPO.
      
    In announcing the hearing, Chairman Shaw stated: ``Workers who pay 
into Social Security are entitled to benefits for their spouses. 
However, spouse benefits are designed for husbands and wives who are 
financially dependent on the other spouse because they don't have 
pensions of their own. The government pension offset was initially 
created to address these somewhat conflicting principles. We now need 
to determine whether it should be changed to improve the fairness of 
the Social Security program.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on why the government pension offset was 
created, how it works, and suggestions for modification. The hearing 
will also discuss how modifications to the provision would affect the 
budget and the solvency of the Social Security Trust Funds.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Tuesday, 
July 11, 2000, to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Social Security office, room B-316 
Rayburn House Office Building, by close of business the day before the 
hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeanshouse.gov''.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Shaw. Good morning and welcome to today's hearing 
about Government pension offset in the Social Security program. 
Many Government workers do not pay into the Social Security 
system. However, they may be entitled to spousal benefits from 
Social Security if their husband or wife has paid into the 
system.
    When planning for retirement, many of these workers count 
on their Government pensions and their full Social Security 
spousal benefits. Some are shocked when they apply for Social 
Security benefits only to learn that their checks may be 
reduced or even eliminated because of a provision in the Social 
Security Program referred to as the Government pension offset 
or GPO.
    Many people wonder how such a provision ever made it into 
the law. The reason is because Social Security spousal benefits 
were created in 1939 to help homemakers who did not have 
pensions of their own. In essence, spousal benefits are 
designed to help people who are financially dependent on their 
husbands or their wives. As a result, married people who work 
in social security jobs do not receive under present law the 
full spousal benefits. Instead, their spousal benefits are 
offset dollar for dollar by the amount of their Social Security 
retirement benefit.
    In contrast, before the GPO, Government workers would 
receive the full spousal benefits even though they also 
received Government pensions from their jobs. The GPO was 
created in 1977 to try to level the playing field. Although the 
goal of the GPO is to equalize the way different workers are 
treated under Social Security, many people believe that the 
provision is unfair and is arbitrary. Moreover many people 
don't even know about the GPO until they retire and apply for 
benefits--I've had some people in my office telling me that--
then they suddenly realize that they must retire on less income 
than they were expecting.
    In response to these concerns several proposals to modify 
the GPO have been put forward. Today we will take an in-depth 
look at the GPO and the various proposals to modify the way 
benefits are determined. We are constantly looking for ways to 
improve the fairness of the Social Security system and I hope 
we can take another step in that direction today.
    Bob.
    Mr. Matsui. Thank you, Mr. Chairman. I have no comment to 
make. I would like to submit my statement for the record, in 
the interest of time. I welcome Mr. Jefferson, who is the lead 
sponsor of a bill that I think has over 200 cosponsors at this 
time, of which I am one. Obviously, this is an issue that many 
people have been very concerned about over the years. On the 
other hand, with a major overhaul of Social Security in the 
works, the issue is do we do it now or do it at that time when 
we really deal with this issue comprehensively. I think this is 
something that we as a subcommittee and full committee will 
have to take a look at. Again, I welcome this hearing.
    [The opening statement follows:]

Opening Statement of Hon. Robert T. Matsui, a Representative in 
Congress from the State of California

    I want to thank Chairman Shaw for holding this hearing this 
morning. As this Subcommittee has debated the future of Social 
Security over the past several years, one of the central issues 
in that debate has been the retirement security of women. As 
I'm sure everyone in this room knows, women -due to a variety 
of economic, demographic, and cultural factors, ranging from 
longer life expectancies to greater amounts of time spent out 
of the workforce -rely quite heavily on Social Security in 
retirement.
    Consequently, I think it is important that the Subcommittee 
spend the time today to examine the Government Pension Offset 
(GPO) because, while it is gender-neutral, it primarily affects 
women.
    Of the roughly 305,000 people who had their Social Security 
benefits either reduced or completely offset by the GPO in 
December 1999, more than 209,000 -or over 68 percent -were 
women. What's more, almost 65 percent of all women affected by 
the GPO had their Social Security benefits completely offset by 
that rule.
    Since the Congress repealed the retirement earnings test 
for Social Security beneficiaries aged 65 and older earlier 
this year, the Government Pension Offset is now one of the 
least popular and least understood provision in the entire 
Social Security Act. When the GPO was adopted in 1977, it was 
intended to put spouses who worked in government jobs not 
covered by Social Security on the same footing as spouses who 
worked in jobs that were covered by Social Security. 
Technically speaking, the GPO was meant to replicate the ``dual 
entitlement'' provisions that reduce spouses' benefits for 
people who receive some Social Security benefits on their own 
earnings record.
    However, despite its unpopularity, we should proceed with 
caution in considering modifications to the GPO. Given the role 
that the GPO is intended to play in replicating the dual 
entitlement rules that apply to beneficiaries who worked in 
Social Security covered employment, modifying that provision of 
the law may treat spouses who worked in non-covered employment 
more favorably than those who worked in covered employment. 
This could potentially create a new class of beneficiaries who 
feel that they too are entitled to higher benefits.
    Consequently, it may be necessary to consider modifications 
to the GPO in the context of comprehensive Social Security 
reform, rather than as an independent issue. What's more, if 
the principal goal of proposals to modify the GPO is to assist 
low-income beneficiaries, then it may also be worthwhile to 
consider changes in the Social Security program that deal with 
this issue directly, rather than differentiate among 
beneficiaries on the basis of the type of employment in which 
they engaged during their careers.
    I want to thank all of our witnesses for being here today. 
In particular, I want to thank Congressman Jefferson for all 
the work he has done on this issue. Thank you, Mr. Chairmen.
      

                                


    Chairman Shaw. Thank you, Bob.
    I would like to introduce our first witness, who certainly 
needs no introduction to this committee, William J. Jefferson. 
I would say about Jeff before he starts to testify, many people 
up here--and you find it happening all the time--will file a 
bill to get somebody out of their office and then not worry 
about it. Jeff has been working on this bill, and he has talked 
to me about it many, many times and I know he has talked to Mr. 
Matsui about it. It has been something he has been working very 
diligently with, and the amount of cosponsorship that has been 
on here is not only a signal of the amount of work that he has 
been doing, but it also shows the respect that Members of 
Congress have for Mr. Jefferson.
    You may proceed as you see fit. Your full statement will be 
put into the record, without objection.

  STATEMENT OF HON. WILLIAM J. JEFFERSON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Jefferson. Thank you, Mr. Chairman. I appreciate your 
kind remarks and generous remarks and I thank you for giving me 
a chance to speak to this committee, and to Mr. Matsui, Ranking 
Member, I thank you also for your help with this bill and for 
your support in so many other ways, and to the other members of 
the committee. Rob is here, good to see you this morning.
    Mr. Chairman, this discussion has been a long time coming 
in this forum. I of course would like, as would you, to see a 
comprehensive reform of social security, and Mr. Matsui 
mentioned it a minute ago, and God only knows when that might 
happen or if it will. We do know, however, that we have an 
outstanding problem here that many Members of Congress are now 
turning their attention to and we have taken up one issue, as 
you know, in the system that was an egregious problem this year 
that was far more expensive than this one. I think that it is 
time to turn our attention to this in earnest.
    I introduced the Government Pension Offset Reform 
legislation in the last Congress and in this one. We now have 
in this one 244 cosponsors, more than enough to pass the bill, 
we are up for passage, and we are adding cosponsors every day. 
I think the pension offset reform is needed because the 
existing offset law continues to destroy the retirement 
security of many retired Federal workers, and workers who are 
not Federal workers who are working for State and local 
Governments, in many cases wiping out their spousal and 
survivor benefits. Ending this injustice is a top priority for 
many of us.
    I think, Mr. Chairman, the time to reform the harsh and 
unfair pension offset law is now. The pension offset law was 
originally enacted in 1977. It's important to note that it was 
not part of the original Social Security system. On the other 
hand, the dual entitlement rule has been in the law since 1939, 
almost as long as the system has been around, and was a part of 
the original confection of it early in the 1930s. But this 
pension offset is an outgrowth of a Supreme Court decision, the 
Goldfarb decision, as you know, which eliminated the unequal 
treatment of men and women with respect to Social Security 
payment benefits, and required that either spouse, without 
regard to dependency, be able to receive the benefits of the of 
the other.
    Now after Goldfarb there became a regular concern on the 
part of lawmakers here that because men were making well 
working on household jobs there would be a huge impact on the 
Social Security system. So there was a need in the minds of 
many to do something about it. It is curious if you look at 
this thing historically, what happened here, the first deal was 
to have a one for one offset, as you know. There was so much 
public outcry about it until it was adjusted downward. The 
House actually passed a one-third offset bill and the Senate 
passed nothing, so when they started talking about it in 
conference they just compromised at two-thirds. It was 
completely arbitrary and imprecise and had no rationale other 
than let's get it done and get out of town, I suppose. But 
nonetheless, I wanted you to understand and note that the House 
passed a one-third offset back in 1983 and ended up with a 
compromise of two-thirds.
    The major concern that I have here and that others have is 
that many workers, low income workers, lower salary workers, 
like teachers, secretaries, school cafeteria workers, library 
workers, cafeteria workers, and many others receive lower 
pension benefits because they receive lower salaries on their 
jobs. They are unable to survive solely on their lower salaries 
and they have no retirement security. To illustrate the harsh 
impact of the pension offset, consider a widow who retired from 
the Federal Government and received an a civil service annuity 
of $600 monthly and is otherwise entitled to full widow 
survival benefits of $400. The current pension offset law 
reduces the window's survival benefit to zero. Two-thirds of 
the $600 civil service annuity is $400 which is then subtracted 
from the $400 widows survivor benefit, leaving zero. The widow 
receives $600 instead of $1,000. The pension offset law, 
therefore, decimates this widow's retirement security and 
forces her to live out her remaining years in poverty.
    This is a result which none of us are proud of. My office 
has received numerous calls, mostly all of them from widows, 
who are just getting by and who desperately need some relief 
from the pension offset. The legislation does not completely 
repeal the pension offset, I should note, but provides a 
modification to complete repeal. It will allow pensioners and 
widows affected by pension offset provision to received a 
minimum $1,200 per month indexed to inflation before offset 
provisions could be imposed.
    Mr. Chairman, the pension offset legislation is good 
economic, social, and public policy. Limiting the exclusion to 
$1,200 of combined benefits allows us to protect our teachers 
and other low-wage Government workers from poverty while still 
allowing us to prevent the abuses by higher pensioned workers 
targeted by the Government pension offset. Best of all, it 
provides the needed security without threatening the long-term 
viability and solvency of the Social Security system. 
Proponents of the pension offset claim that the offset is 
justified because it treats widows who worked in employment not 
covered with Social Security in the same way as those who 
worked in covered employment. However, this fairness argument 
is dubious and I think misses the mark.
    First, it presumes that there is some fairness in the dual 
entitlement rule. That's questionable but it leaves poor 
seniors in any case in a terrible position. And so no benefit 
rule that forces already poor seniors further into poverty can 
be deemed fair and justified on the basis of that it is 
happening in some other instance. Our legislation simply allows 
these poor women, in most cases women, to keep $1,200 a month 
in combined benefits before and offset is applied.
    Second, it is unfair to reduce the survivor benefits of 
noncovered workers because unlike covered workers under Social 
Security noncovered workers are not double dipping. Pension 
benefits are paid out of the State retirement funds not out of 
the Social Security trust fund. Thus, the perceived threats of 
Social Security solvency is less, especially for lower income 
individuals.
    Third, despite proponents claim to the contrary, widows is 
affected by the pension offset have not had sufficient notice 
to make alternative plans for retirement. As you have noted, 
people are surprised by this provision all the time.
    Fourthly, extending the pension offset to Government 
employees creates an in equity between public and private 
pension recipients. While Social Security benefits of surviving 
spouses earning a Government pensions are reduced by the 
pension offset, Social Security benefits of surviving spouses 
earning private pensions are not subject to offset at all. So 
if a teacher is in a private school setting, that teacher's the 
survivor benefit is not offset by the pension that the to 
teacher receives. So we are only penalizing people who are in 
the public sector and not those who are in private work such as 
teachers or clerks or what ever. Mr. Chairman, I ask you if 
retirees on private pensions do not have Social Security 
benefits subject to offset, why should retirees who work in 
public service have their pensions offset.
    The pension offset has created a problem that cries out for 
reform. The inequity in the pension offset was not fixed in 
1983 when the offset was reduced from one to one to two-thirds. 
In fact, most of the benefits in treating one-third of the 
Government pension as a private pension went to higher 
pensioned workers. The Government pension offset that is 
applied to low income pension recipients will cause tens of 
thousands of retired Government employees, including many 
teachers, custodians, or lunchroom workers, to live their 
retirement years at or near the poverty level.
    I urge this committee to support this vital piece of 
legislation and assist me and so many others now who have 
joined in this effort in moving it through the legislative 
process. The time to reform the pension offset is now, Mr. 
chairman. We owe it to our teachers, we owe it to our other 
workers, we owe it to our seniors, we owe it to the American 
people. Thank you, Mr. chairman.
    [The prepared statement follows:]

STATEMENT OF HON. WILLIAM J. JEFFERSON, A REPRESENTATIVE IN CONGRESS 
FROM THE STATE OF LOUISIANA

    Mr. Chairman, I am pleased to have the opportunity to urge 
this Committee to support the Government Pension Offset Reform 
legislation, H.R. 1217, I introduced at the beginning of this 
session and which now has 244 cosponsors(Pension Offset 
Reform).
    Pension Offset Reform is needed because the existing Offset 
law continues to gut the retirement security of many retired 
federal workers by wiping out their spousal and survivor 
benefits. Ending this injustice is a top priority for me. It is 
a top priority for many of my constituents in Louisiana. It is 
a top priority for many seniors groups and state and local 
government employees across the nation. And, it is also a top 
priority for the 244 cosponsors of the Pension Offset Reform 
legislation. In short Mr. Chairman, the time to reform the 
harsh and unfair Pension offset law is now.
    The Pension Offset was originally enacted in 1977 in 
response to the perceived abuses to the Social Security System 
that would result from the Goldfarb decision.
    Prior to Goldfarb, the Social Security System provided that 
if a spouse who worked and paid into Social Security died, the 
benefits were to be paid to the surviving spouse as a survivor 
benefit. However, men were required to prove dependency on 
their spouses before they became eligible for Social Security 
survivor benefits. There was no such requirement for women.
    The Goldfarb decision eliminated the unequal treatment of 
men and women and required Social Security to pay benefits to 
either spouse without regard to dependency.
    Concern arose because many of the men who would benefit 
from the Goldfarb decision were also receiving large government 
pensions. Many officials believed that paying these benefits 
would bankrupt the Social Security system.
    To combat this perceived problem, Pension Offset 
legislation was enacted. The legislation reduced the Social 
Security benefits that aged or surviving spouses received by 
one dollar for every dollar they received in earned pension 
benefits from a federal, state, or local government employer 
not covered by Social Security.
    Widespread opposition to the Pension Offset erupted in the 
federal retirement community, forcing Congress to moderate its 
stance on the Pension Offset. In 1983, as a compromise, the 
Pension Offset was reduced to two-thirds of the public employer 
survivor benefits. The purported rationale was that two-thirds 
of the government pension was equivalent to Social Security 
benefits and one-third of the pension was equivalent to the 
pension available in the private sector.
    Mr. Chairman, the compromise reached in 1983 has not 
relieved the harsh impact of the Pension Offset, especially on 
women. While the Pension Offset successfully curtailed the 
windfall to high paid government employees, it continues to 
have very devastating and unintended consequences to low income 
public service employees. The Pension Offset as applied to this 
group is punitive, unfairly harsh and bad policy.
    Unlike upper level government workers, whose government 
pensions are more likely to be sufficient to ensure their 
retirement security, lower salaried government workers such as 
teachers, secretaries, school cafeteria workers and others will 
be unable to survive solely on their lower pension benefits. 
Additional government assistance, such as Temporary Assistance 
to Needy Families, will be needed.
    To illustrate the harsh impact of the Pension Offset, 
consider a widow who retired from the federal government and 
receives a civil service annuity of $600 monthly and is 
otherwise entitled to full widow's survivor benefit of $400. 
The current Pension Offset law reduces the widow's survivor 
benefit to $0 a month (2/3 of the $600 civil service annuity is 
$400, which is then subtracted from the $400 widow's survivor 
benefit, leaving $0). The widow receives $600 ($600 + $0) per 
month, instead of $1000. The Pension Offset destroys this 
widows retirement security and forces her to live out her 
remaining years in poverty. A harsh and unfair result that must 
be changed. . .must be changed now.
    My office has received numerous calls, all from widows who 
are just getting by and desperately need some relief from the 
Pension Offset. Enacting the Pension Offset Reform legislation 
would bring them this needed relief.
    The legislation, does not completely repeal the Pension 
Offset, but provides a modification to a complete repeal. It 
will allow pensioners and widows affected by Pension Offset 
provisions to receive a minimum $1200 per month, indexed to 
inflation, before offset provisions could be imposed. The 
legislation also contains a hold harmless provision to ensure 
that no recipient's benefits are reduced by this legislation. A 
corresponding Senate bill, S717 was introduced in the Senate by 
Senator Barbara A. Mikulski (D-MD) and now has 20 cosponsors.
    Mr, Chairman, the Pension Offset Reform legislation is good 
economic, social and public policy. Limiting the exclusion to 
$1200 of combined benefits allows us to protect our teachers 
and other low waged government workers from poverty, while 
still allowing us to prevent the abuses by high pensioned 
workers targeted by the government pension offset. Best of all, 
it provides this needed security without threatening the long 
term viability of the Social Security system.
    Proponents of the Pension Offset claim that the offset is 
justified because it treats widows who worked in employment not 
covered with Social Security in the same manner as those who 
worked in covered employment. However, this fairness argument 
is dubious and disingenuous at best.
    First, unfairness to low income seniors by applying the 
Pension Offset cannot be justified by unfairness to low income 
seniors by applying the dual entitlement rule. No benefit rule 
that forces already poor seniors further into poverty can be 
deemed fair. Our legislation simply allows these poor women to 
keep $1200 a month in combined benefits before any offset is 
applied.
    Second, it is unfair to reduce survivors benefits of non 
covered workers because unlike covered workers under Social 
Security non covered workers are not double dipping from the 
Social Security pot. Pension benefits are paid out of the state 
retirement fund and not out of the Social Security trust fund. 
Thus, the perceived threat to Social Security solvency is less, 
especially for low income individuals.
    Third, despite proponents' claim to the contrary, widows 
affected by the Pension offset have not had sufficient notice 
to make alternative plans for retirement. Covered workers have 
always been subject to the dual entitlement rule. However, non 
covered workers were not subject to the Pension Offset until 
phasing began in 1977.
    Fourth, extending the Pension Offset to government 
employees creates an inequity between public and private 
pension recipients. While Social Security benefits of surviving 
spouses earning government pensions are reduced by the Pension 
Offset, Social Security benefits of surviving spouses earning 
private pensions are not subject to offset at all.
    Mr. Chairman I ask you, If retirees on private pensions do 
not have Social Security benefits subject to offset, why should 
retirees who worked in public service?
    The Pension Offset has created a problem that cries out for 
reform. The inequity in the Pension Offset was not fixed in 
1983 when the offset was reduced from $1 for $1 to the two-
thirds offset. Infact, most of the benefits in treating one-
third of the government pension as a private pension went to 
high pensioned workers. The current Pension Offset, as applied 
to low income pension recipients, will cause tens of thousands 
of retired government employees, including many teachers, 
custodians or lunch room workers, to live their retirement 
years at or near the poverty level.
    I urge this Committee to support this vital piece of 
legislation and assist me in moving it through the legislative 
process. The time to reform the Pension Offset is now. We owe 
it to our teachers, we owe it to our seniors,. . . we owe it to 
the American people.
    Thank you Mr. Chairman.

                         Problems with Proposal

    A. Cost is $300 million a year and rising. $1.7 billion 
over 5 years and $4.4 billion over 10 years. However, the 
earning limit repeal was more costly. This legislation has 
greater impact on poor widows, especially women.
    B. Government wants to tighten Social Security and protect 
its solvency. Thus, it may be subject to a point of order in 
the House. However, SSA letter states that H.R. 1217 will have 
a negligible impact on Social Security long term solvency.
    C. If the spouse had paid Social Security instead of for a 
pension, the spouse could not collect both personal and spousal 
social security. The spouse could only collect the higher. 
However, see above distinction between Pension Offset and dual 
entitlement rule.
    D. Will provide for 100% offset for amounts of combined 
benefits over $1200. Thus, the bill may reduce benefits for 
higher wage earning widows or widowers. However, we included an 
hold harmless provision.
      

                                


    Chairman Shaw. Thank you.
    Mr. Matsui.
    Mr. Matsui. I don't have any questions. I would like to 
thank Jeff for his testimony.
    Chairman Shaw. Mr. Portman.
    Mr. Portman. Thank you, Mr. Chairman. I also want to thank 
Mr. Jefferson for his testimony this morning and for his 
diligence in this effort. He is my neighbor down the hall and 
maybe because of that, we've had an opportunity to talk about 
this a whole lot and he is a real advocate for making change. 
Plus, I think that this is a very responsible approach, and I 
think that ought to be noted that when I am back home in my 
town meetings and this issue comes up, often it is a lot easier 
just to say forget any limitations in this, we should just open 
it up. And you know, frankly the people who care the most about 
this, the folks who are directly affected, are often widows who 
are in a very difficult situation and deserve our attention. 
You have come up with something that I think is reasonable and 
practical that doesn't bankrupt the system.
    My question to you I guess would be how many people are 
affected by your approach? You use $1,200 index to inflation as 
your threshold.
    Mr. Jefferson. There are about 305,000 or so people who 
last year were affected by the Government pension offset 
provisions. I would expect that it would be some number like 
that.
    Mr. Portman. What percentage of those folks would be 
assisted by your legislation in the sense of seeing a boost in 
their benefits. Do you have any sense of that? CBO has a 25 per 
cent number out there, I guess a 20 percent number for a boost 
in benefits. Is that roughly where you come out? Do you know?
    Mr. Jefferson. That may be right. Essentially anyone who 
would be affected--
    Mr. Portman. Less than $1,200.
    Mr. Jefferson. That's right. Would be subjected to help 
here. I don't know exactly what the number is, Rob. But there 
is an estimate that is made in order to get to a number as to 
what the bill would cost.
    Mr. Portman. Right.
    Mr. Jefferson. And so it is something like what you're 
saying.
    Mr. Portman. Okay. In Ohio, as you know, I think we have an 
exemption, 92 percent of our public employees are exempted from 
Social Security. We are one of the States, I guess there are 
eight that have significant numbers of non-Social Security 
covered employees and so this is clearly a big issue back in 
Ohio. Not just Federal employees but State and local employees, 
so I appreciate your leadership on this issue and look forward 
to working with you on it going forward.
    Mr. Jefferson. Thank you. There is no way to get past the 
fact that we haven't a system and allowances for States like 
yours and like mine and others where employees can opt out of 
the system. When they do then we say maybe they shouldn't have 
and we want to treat them in a different way. I do not think 
that is fair or right. When people spend their lives working in 
public service, they ought not to be penalized because they did 
not make the decision to work in the private sector. I think we 
ought to actually support them more, for the reason that they 
are involved in public service. Usually public service jobs, 
particularly in the case of women, pay less. So we have the 
dual problem cropping up in this thing.
    You will hear today talk from the Social Security people 
who I guess will be measured in their comments, but 
nevertheless they will be critical of this approach and any 
reform in this area, and who will say that we do not help 
enough low income people. We help some other folks that are not 
as bad off as some of the people that we want to emphasize 
here. But the fact of it is, how you deal with this whole issue 
of dependency. Is $1,200 a lot of money today or not? And our 
provision, they will say, is not well targeted. It needs to be 
better targeted. On the other hand, they will say we ought to 
means test, which we don't try to do here. So it will be a 
little confusing as it goes along but it can be expected not to 
be supported.
    I think over all, the system as we have it set up here, we 
can't have rules that allow people to work and not be in the 
Social Security System and then penalize them for not having 
gotten into it down the line.
    Chairman Shaw. Bill, just one comment quickly. I was just 
handed some testimony that's going to come up later. Just to 
clarify the record, the numbers I have for the CBO are 
different from the numbers that we are going to get from SSA, 
and you should know that. SSA will testify that, based on the 
written testimony, 50 percent of the beneficiaries now affected 
by GPO would have their benefits increased under the bill, 
including 29 percent who would come out of offset. We may have 
a difference between CBO and SSA. Maybe we will get into that 
later. We intend to hear from other witnesses.
    Mr. Jefferson. I have the testimony here. There are many 
people who are supporting this who want all of the people who 
are affected to have their benefits increased. The bill, as you 
pointed out, has a $1,200 limitation on it doesn't go that far. 
It only reaches half the people that are involved. They will 
admit that of the women with increased benefits 64 per cent 
would be wives, and 36 percent would the widows, and 90 per 
cent of those who would receive that benefit have income above 
the poverty level. Well it is not our design here to relegate 
workers to poverty level pension receipts. I hope will do 
better than that. I hardly see it as a criticism. But in any 
event, thank you for your comments and questions.
    Chairman Shaw. Mr. McCrery.
    Mr. McCrery. Thank you, Mr. Chairman. I want to 
congratulate my colleague from Louisiana on his work in this 
matter. This is a very complicated matter that not many people 
understand and I commend him for digging into it and trying to 
come up with a proposal that makes a lot of sense. I am 
certainly willing to work with the other members of this 
subcommittee in trying to determine whether there is something 
workable that is fair and does not add too much of the burden 
to the system.
    But I am troubled by the current law. I do hear this 
complaint from a number of folks back in my district. On the 
face of it, it does seem to be somewhat unfair. And so again I 
want to commend the gentleman and pledge to work with him and 
other members of the subcommittee to try to discover maybe some 
modification that will make the system a little bit more fair 
on the face of it at least. So thank you, Mr. Jefferson.
    I just want to ask one question, and I am sorry that I got 
here a few minutes into your testimony, you may have covered 
this. But on the mechanics of your bill, how do you determine 
the $1,200? Evidently, based on the statement that Rob Portman 
just made, from Social Security, where only 50 percent of those 
in the category that you mentioned would be affected, 
evidently, you don't give everybody a $1,200 exemption from the 
application of this rule. But how does it work? How do you 
determine that $1,200?
    Mr. Jefferson. You actually do give it to everyone, except 
that some people have pensions which are larger than that one. 
I will tell you how it works, and it just ends up falling out 
that way, depending upon how much that person's pension is and 
how much the survivor benefit is, is going to determine what 
the level is. Assume a widow has a $600 pension that she has 
earned in some employment and would therefore have a right to 
receive it. Her husband has left a $900 survivor benefit which 
otherwise she would have a right to, so add $900 and $600 is 
$1,500. What would happen is we would take two-thirds of her 
$600, which would be $400, and subtract it from his $900, 
leaving $500 she could apply to her benefit. Then we would go 
back and add $500 to her $600 and she would have a $1,100 of 
benefit. Thus she would therefore be under the cap.
    Mr. McCrery. So what would happen to her under your bill? 
Would she get another hundred dollars?
    Mr. Jefferson. Under our bill she could get another hundred 
dollars, up to $1,200. In other words, she would get the 
difference between how those numbers added up. In this case 
$1,100 to $1,200 and if she would get the $1,200 benefit she 
would be cut off.
    Mr. McCrery. So when you apply the offset, if the total of 
her benefit was over 1200, she would not be affected by your 
legislation.
    Mr. Jefferson. No. That's right.
    Mr. McCrery. Okay. Thank you.
    Mr. Jefferson. And if she had only $500 in her own pension 
and her husband had a $800 coming in survivor benefit, the 
makeup would be larger to get to $1,200. But the idea would be 
to get the widow to $1,200 at a minimum.
    Mr. McCrery. Okay. Thank you.
    Mr. Jefferson. Thank you, and I thank you for your 
attention to it.
    Chairman Shaw. Thank you very much, Mr. Jefferson. We 
appreciate your good work on bringing this before the committee 
and your testimony this morning.
    Our next witness from the Social Security Administration, 
Dr. Jane Ross, who is the Deputy Commissioner for Policy. Miss 
Ross, welcome. We are in a little bit of a time constraint. We 
have been told that we must be out of this room by 12:30. Dr. 
Ross, would you have any objection having Dr. Cullinan from the 
Budget Analysis Division of Human Resources Cost Estimate Unit 
to join you as a panel on this?
    Ms. Ross. That would be fine.
    Chairman Shaw. Appreciate it. That will expedite our 
hearing somewhat. Dr. Ross, thank you very much.

  STATEMENT OF JANE L. ROSS, DEPUTY COMMISSIONER FOR POLICY, 
                 SOCIAL SECURITY ADMINISTRATION

    Ms. Ross. Mr. Chairman and members of the subcommittee, 
thank you for this opportunity to discuss the Government 
pension offset provision, which is commonly known as the GPO. I 
want to briefly describe how this provision works, why the 
Congress enacted it, and also comment on proposed changes.
    The purpose of the GPO provision is to remove an unfair 
advantage available to Government workers who are not covered 
under the Social Security program. It is designed to treat 
Government workers similarly to the way that workers who are 
covered by Social Security are treated. The GPO affects only 
currently married couples or widows and widowers where one 
member of the couple worked in Government employment not 
covered by Social Security. Frankly, the GPO can be one of the 
more difficult Social Security provisions to explain succinctly 
so I brought along several charts to show you how it works. Let 
me begin. I think you have these charts in front of you as 
well.
    Let me start by first talking about the dual entitlement 
provision of Social Security. This provision provides that 
Social Security benefits payable to a person as a spouse or a 
surviving spouse be reduced by the amount of that person's own 
Social Security workers benefit.
    In this first chart, Mary is a retired worker who is 
entitled to a monthly Social Security benefit of $600, as shown 
in the left-hand column. Because her husband also worked under 
Social Security and is himself entitled to a retirement benefit 
of $1,400, Mary would be entitled to a Social Security spouses 
benefit of $700 if Social Security did not have a dual 
entitlement provision. The dual entitlement provision means 
that Mary cannot receive both benefits in full. She gets the 
$600 of her own retirement benefit plus the difference of her 
spouses benefit which is $100, giving her a total monthly 
benefit of $700 which you can see on the right. In dollar 
terms, she receives the larger of the two benefits.
    Now going to the second chart, in the second chart is 
Mary's sister Nancy who worked in a Government job not covered 
by Social security. Nancy gets a monthly Government pension of 
$600, the same amount as Mary's Social Security worker's 
benefits. Nancy's husband, like Mary's, receives a monthly 
Social Security benefit of $1,400 making Nancy eligible for a 
Social Security spouses benefit of $700. The dual entitlement 
provision does not apply to Nancy because she did not work 
under Social Security. If the GPO provision did not exist, 
Nancy would receive her monthly spouses benefit of $700 plus 
her Government pension of $600 for a total of $1,300. That's 
what were showing in this second chart.
    The third chart shows how the current GPO provision affects 
Nancy's Social Security benefits. Under the GPO, Nancy's $700 
spouse benefit is reduced by two thirds of the amount of her 
Government pension or $400. Nancy therefore, receives her 
monthly pension of $600 plus a monthly spouse's benefit of $300 
for a total of $900. As a result of the GPO Nancy, who worked 
in a non-covered job is treated similarly to Mary.
    The 4th chart shows a comparison of the three examples. I 
believe that this chart demonstrates how the GPO approximates 
the affects of the dual entitlement provision and removes the 
more favorable treatment under Social Security for Government 
workers who are not covered by Social Security. You will note 
that, although the GPO provision is intended to accomplish the 
same purpose as the dual entitlement provision, the amount of 
the reduction under the GPO is different.
    Social Security and Government pensions have different 
benefit structures and serve different purposes. Congress 
recognized that a Government pension includes both a private 
pension component and a Social Security component. Congress 
settled, as Mr. Jefferson said, on two-thirds of the Government 
pension as an approximate equivalent to a Social Security 
workers benefit. As of December 1999, 305,000 beneficiaries had 
their benefits fully or partially offset due to the GPO.
    Now let me turn to Mr. Jefferson's proposal, H.R. 1217. 
This proposal would eliminate the GPO for individuals with 
combined monthly Social Security spouse or surviving spouse 
benefits and noncovered Government pensions of $1,200 or less. 
If the combined amount exceeds $1,200 there would be a dollar 
for dollar offset for the excess above $1,200.
    We have two final charts which showed the effects of H.R. 
1217. In the first, we look again at Nancy our retired 
Government employee. We find that she would receive a total 
monthly pension of $1,200 under H.R. 1217 now compared with 
$900 under current law. The final chart shows a comparison of 
all four examples. And as you can see H.R. 1217 represents a 
significant change from current law. I'd like to point out that 
under the current GPO provision Nancy receives more than Mary 
receives under the dual entitlement provision and under this 
bill she would receive additional benefits.
    Our analysis of H.R. 1217 shows that if it were applied to 
current beneficiaries affected by the GPO, 50 percent of them 
would have their benefits increased. Of that number, 90 percent 
have family incomes above the poverty threshold and 80 percent 
have family incomes over 150 percent of the threshold. That is 
90 percent of the beneficiaries helped by this bill are not 
poor. There are legitimate issues regarding the need to 
alleviate poverty among low income elderly but H.R. 1217 is not 
well targeted to address those issues. We estimate that H.R. 
1217 would cost approximately $2.3 billion over the first five 
years and that the long-range cost would be negligible.
    In conclusion, let me say that Congress had a good reason 
to enact the GPO. It was established to prevent workers whose 
government employment is not covered by Social Security from 
receiving more favorable treatment compared to workers who 
spent a lifetime in Social Security covered employment. 
Finally, I think that any change in the GPO should be 
considered in the broader context of long-range financial 
reforms for the Social Security program because a change in the 
GPO involves changing the relative level of benefits for one 
group of beneficiaries over another.
    I want to thank you for this opportunity to testify and I 
will be glad to answer any questions you have.
    [The prepared statement follows:]

STATEMENT OF JANE L. ROSS, DEPUTY COMMISSIONER FOR POLICY, SOCIAL 
SECURITY ADMINISTRATION

    Thank you for giving me the opportunity to appear before 
you today to discuss the government pension offset provision, 
commonly referred to as the GPO. Today I will describe for you 
how this provision works and the reasons Congress enacted it. I 
will then discuss H.R. 1217, a bill that is before this 
Subcommittee that would change the way this provision is 
applied.
    The GPO affects Social Security beneficiaries who receive 
pensions based on work not covered under Social Security. These 
beneficiaries are retired workers who were employed by Federal, 
State, and local government entities. The GPO reduces or 
eliminates the Social Security benefit payable to a person as 
the spouse or surviving spouse of a worker.
    In enacting the GPO, Congress intended to remove an unfair 
advantage available to government workers whose employment was 
not covered under the Social Security program. The goal of the 
GPO is to assure that Social Security dependent's benefits will 
not be paid to persons not dependent on the worker.

Description of GPO

    The GPO affects government retirees who are eligible for 
two retirement benefits:
     A pension based on their own work in a Federal, 
State, or local government job that was not covered by Social 
Security, and
     A Social Security dependent's benefit based on 
their husband's or wife's work in covered employment.
    For such a retiree, the GPO requires that the Social 
Security spouse's benefit be reduced--or ``offset''--by two-
thirds of the amount of the noncovered government pension.
    To simplify the discussion I will generally talk about how 
the GPO affects Social Security benefits paid to wives. 
Actually, the provision also similarly affects benefits for 
other dependents--husbands, widows, and widowers. Also, when I 
speak of government employment, unless I note otherwise, I am 
referring to employment that was not covered by Social Security 
on the last day of the worker's employment. This is the test 
used under the current law offset provision.

Rationale for the GPO

    Let me now turn to a discussion of the rationale for the 
GPO. The GPO provision, enacted by Congress in 1977, is 
designed to replicate the dual-entitlement provision of the 
Social Security program for workers receiving a pension from 
noncovered government employment. The dual-entitlement 
provision, which has applied since 1940, requires that Social 
Security benefits payable to a person as a spouse or surviving 
spouse be reduced by the amount of that person's own Social 
Security worker's benefit. Thus, a person who works in a job 
that is covered under Social Security and receives a Social 
Security worker's benefit cannot also receive a full Social 
Security spouse's benefit. The dual-entitlement provision was 
intended to restrict the payment of benefits to those family 
members who were actually dependent on the worker.
    Under the dual entitlement provision, if a person is 
entitled to a larger Social Security benefit as a worker than 
as a spouse, no spouse's benefit is payable because the person 
is not considered dependent on the other spouse. Similarly, if 
the benefit payable as a spouse exceeds the worker's benefit 
for that person on their own record, then the spouse's benefit 
is offset by the amount of the worker's benefit. As a result of 
the dual entitlement provision, nearly 6 million beneficiaries 
receive reduced benefits as spouse--which is to say that they 
receive the equivalent of the worker's benefit or the spouse's 
benefit, whichever is higher.
    The GPO acts as a surrogate for the dual entitlement 
provision for workers receiving a government pension based on 
work not covered under Social Security because if the work had 
been covered, any spouse's or surviving spouse's benefit would 
have been reduced by the person's own Social Security worker's 
benefit. Government pensions are, to a large extent, a 
substitute for Social Security benefits. The result of 
enactment of the GPO is that spouses and surviving spouses are 
treated similarly, regardless of whether their jobs are covered 
under Social Security or not. Thus, the GPO helps ensure that 
those who receive Social security benefits as dependents were, 
in fact, dependent to some extent on the worker for financial 
support.

Visual Presentation

    To better illustrate the dual entitlement provision and how 
the GPO helps replicate dual-entitlement, I've brought along 
several illustrative charts.
    The first chart shows Mary, a woman worker whose monthly 
Social Security retirement benefit is $600. Mary's husband has 
a Social Security worker's benefit of $1,400, entitling Mary to 
a Social Security spouse's benefit of $700. However, because of 
the dual-entitlement provision, Mary cannot receive both 
benefits in full. Her $700 benefit as a spouse is offset dollar 
for dollar by her $600 worker's benefit. Consequently, she 
receives her worker's benefit of $600 plus the remaining 
spouse's benefit of $100 for a total monthly benefit of $700.
    The second chart shows Mary's sister Nancy. Nancy worked in 
a government job not covered by Social Security. While Nancy 
does not receive a Social Security worker's benefit, she does 
receive a monthly government pension of $600. Like Mary's 
husband, Nancy's husband also receives a monthly Social 
Security benefit of $1,400 so Nancy is eligible for a Social 
Security spouse's benefit of $700. Since Nancy does not receive 
a Social Security worker's benefit, the dual entitlement 
provision does not apply. If the GPO provision did not exist, 
Nancy would receive her monthly spouse's benefit of $700 plus 
her government pension of $600 for a total of $1,300 in monthly 
benefits.
    The third chart reflects present law and shows how the GPO 
provision affects Nancy's Social Security benefits. Under the 
GPO, Nancy's $700 spouse's benefit is reduced by $400, two-
thirds of the amount of her monthly government pension. Thus, 
under GPO, Nancy receives her monthly pension of $600 plus a 
monthly spouse's benefit of $300 for a total of $900. As a 
result of the GPO, Nancy, who worked in a noncovered job, is 
treated like Mary, who is affected by the dual entitlement 
provision.
    The fourth chart shows a comparison of the three examples. 
I believe that this chart demonstrates how the GPO was designed 
to replicate the dual entitlement provision and remove the 
favorable treatment under Social Security that previously 
existed for government workers who were not covered under 
Social Security.

Why the Offset is Less Than 100 Percent

    Although the GPO provision is intended to accomplish the 
same purpose as the dual entitlement provision, the amount of 
the reduction under the GPO is different:
    Under the dual entitlement provision, there is a dollar-
for-dollar reduction: if a woman gets a monthly Social Security 
benefit of $300 based on her own work, then $300 is subtracted 
from any Social Security benefit she would get as a wife.
    Under GPO, there is a two-thirds reduction. If a woman gets 
a monthly pension of $300 based on her own work in government, 
then two-thirds of it ($200) is subtracted from any Social 
Security benefit she would get as a wife.
    The GPO replicates the Social Security dual-entitlement 
rule by assuming that two-thirds of the government pension is 
approximately equivalent to a Social Security retirement 
benefit the worker would receive if his/her job had been 
covered by Social Security. Therefore, only two-thirds of the 
government pension is used to offset Social Security benefits.
    The other third of the government pension is considered as 
the equivalent of a private pension and is not used to offset 
Social Security benefits. Here again, the GPO affects 
government workers in the way that dual entitlement affects 
non-government workers: both groups of workers can receive a 
private pension without having it offset against their Social 
Security spouse's benefit.
    While Congress settled on two-thirds of the government 
pension as the amount to be considered equivalent to a Social 
Security worker's benefit, actually there is no single offset 
rate that would be a precise match in every case. This is 
because Social Security and government pensions have different 
benefit structures and serve different purposes.
    A 1990 Congressional Research Service study of the effects 
of the GPO on employees under the federal Civil Service 
Retirement System concluded, in part, that the net effect of 
these differences between Social Security and government 
pensions is that low earners probably have less of a reduction 
in their spouse's benefits under the GPO than they would under 
dual entitlement. Thus, low earners subject to the GPO 
generally do somewhat better than similarly-situated low 
earners subject to the dual entitlement provision and high 
earners do somewhat worse under the GPO than similarly-situated 
high-earners subject to dual entitlement.

Impact of GPO

    As of December 1999, 305,000 beneficiaries had their 
benefits fully or partially offset due to the GPO. The 
following table shows some important distinctions in its 
effects on men and women:



                                                   Men          Women

Affected by the GPO.........................       96,000       209,000
Benefits Fully Offset.......................          98%           65%
Average Monthly Offset......................         $276          $391


    The difference in the average pension received by those 
affected by the GPO varies significantly by gender. For women, 
the average monthly pension amount is currently about $1,150; 
for men it is $1,950. As expected, the pension amount is larger 
for those who are fully offset. For women whose benefits are 
fully offset, the average pension is $1,400, but only $540 for 
women whose benefits are partially offset under the GPO 
provision.

Arguments for Eliminating the GPO

    Critics of the GPO say that:
     The provision is not well understood and many 
people are unprepared for a smaller Social Security benefit 
than they had assumed in making retirement plans.
     Reducing everyone's spousal benefit by two-thirds 
of their government pension is an imprecise way to estimate 
what the spousal benefit would be had the government job been 
covered by Social Security. Ideally, the way to compute the 
dual entitlement rule would be to apply the Social Security 
benefit formula to an individual's total earnings, including 
the noncovered portion, and reduce the resulting Social 
Security benefit by the proportion of total earnings 
attributable to noncovered earnings. However, this is not 
possible from an administrative standpoint because SSA does not 
have information on a person's noncovered earnings history.
     The GPO unfairly singles-out workers with 
government pensions, compared to those with private pensions.

Arguments for Retaining the GPO

    Defenders of the GPO maintain that:
     It is an effective method to cut back what 
otherwise would be an unfair advantage for government workers.
     It is appropriate to provide different treatment 
for workers with government pensions if they did not pay Social 
Security tax on the employment that generated the pension.
     There has been ample time for people to adjust 
their retirement plans since the provision has been in the law 
for nearly 23 years.
     Had these workers been covered by Social Security, 
in many cases Social Security's dual entitlement rule would 
actually produce a greater reduction of spouse's benefits than 
does the GPO.
    While not always perfect, because administrative 
considerations precluded applying the Social Security benefit 
computation rules to government employment, the GPO is defended 
as a practical way to prevent undue Social Security benefits 
from going to government annuitants.

H.R.1217

    Now I'd like to discuss H.R. 1217, the bill introduced by 
Representative Jefferson to modify the GPO. Under H.R. 1217, 
the GPO would be eliminated for individuals with combined 
monthly Social Security spouse's/surviving spouse's benefits 
and non-covered government pensions of $1,200 or less. If the 
combined amount exceeds $1,200, there would be a dollar-for-
dollar offset for the excess above $1,200. The bill would also 
guarantee that the offset could not exceed two-thirds of the 
pension, as guaranteed under present law. The $1,200 amount 
would be indexed by annual cost-of-living adjustments (COLAs).

Effects of H.R. 1217

    We've prepared another chart to show the effects of H.R. 
1217. You'll recall, Nancy, our government worker, receives a 
monthly pension of $600 based on her noncovered government 
employment. In addition, her monthly spouse's benefit of $700 
is reduced to $300 because of the current law GPO provision. 
The total that she would receive would be reduced from $1,300 
to $900. Under H.R. 1217, no reduction would apply to the first 
$1,200 in combined monthly benefits. The combined amount of her 
government pension and Social Security benefits--$1,300--would 
exceed the $1,200 threshold by $100. Consequently, Nancy's 
Social Security spouse's benefit would be reduced under the 
bill by this $100 excess. Nancy would then receive her full 
pension of $600 and $600 per month in spouse's benefits (after 
the offset).
    The final chart shows a comparison of all four examples. It 
shows how H.R. 1217 compares to present law and how it compares 
to the law that was in effect prior to enactment of the GPO. It 
also shows the effect H.R. 1217 would have on noncovered 
government workers compared to similarly-situated persons who 
worked in covered employment.
    By linking the application of the GPO to a dollar threshold 
for the combined amount of the monthly government pension and 
the Social Security benefit, H.R. 1217 would be a significant 
departure from the earned-right nature of the program. The 
strong public support that Social Security has enjoyed since 
its inception is based on the concept that the Social Security 
taxes workers pay establishes a right to benefits that is not 
dependent on a showing of presumed financial need. In this 
regard, H.R. 1217 does nothing for the millions of similarly-
situated spouses with low benefits who have worked and paid 
contributions into the system but whose benefits are affected 
by the dual-entitlement provision.
    SSA's Office of Policy prepared an analysis of the effects 
of H.R. 1217. Based on this study our analysis shows that:
     50 percent of the beneficiaries now affected by 
the GPO would have their benefits increased under the bill, 
including 29 percent who would come out of offset.
     Of the women with increased benefits, 64 percent 
would be wives and 36 percent would be widows. (This parallels 
the distribution of women now in offset.)
     90 percent of those who would benefit from H.R. 
1217 have income above the poverty level and over 80 percent 
have family income over 150 percent of poverty.
    I would like to highlight this last point in particular. It 
demonstrates that H.R. 1217 is not well targeted at low-income 
elderly beneficiaries, especially widows. There are legitimate 
issues regarding the need to alleviate poverty among low-income 
elderly, including those impacted by the GPO. H.R. 1217, 
however, is not well targeted to address those issues.

Cost of H.R. 1217

    SSA's Office of the Actuary estimates that H.R. 1217 would 
cost approximately $2.3 billion over the first five years and 
$5.9 billion over the first ten years. The long-range cost is 
estimated to be negligible (i.e., less than 0.005 percent of 
taxable payroll.)

Informing the Public

    While the GPO has been part of the Social Security law for 
many years, SSA continues to actively work to inform government 
employees about it so that they can properly plan their 
retirement. The annual Social Security Statement advises 
workers that Social Security benefits may be affected by a 
pension based on noncovered work and provides the title of the 
SSA publication, Government Pension Offset, that explains the 
GPO. This publication, as well as information about the GPO, is 
also available on SSA's website.
    For Federal government employees, SSA works closely with 
the Office of Personnel Management to provide background 
materials on the provision including fact sheets and pamphlets. 
These materials are made available at OPM seminars open to all 
Federal employees who are within 5 years of eligibility for 
retirement. SSA also provides the same background materials to 
State and local government agencies and to unions, such as the 
American Federation of State, County, and Municipal Employees, 
for use in informing State and local employees.

Conclusion

    Congress had good reason to enact the GPO. It was 
established to prevent workers who spent a portion of their 
careers in employment not covered by Social Security from 
receiving more favorable treatment under Social Security than 
comparable workers who had worked a lifetime in covered 
employment.
    H.R. 1217 would provide higher Social Security benefits for 
many career government workers whose pensions from noncovered 
employment, in combination with their Social Security benefits, 
are below certain levels. Thus, this bill focuses on providing 
higher Social Security benefits to public sector retirees, who 
were not covered by Social Security during their years in 
government work, simply because their combined public pension 
and Social Security benefits are deemed to be ``too low.'' But 
as previously indicated, 90 percent are not poor and 80 percent 
have family income that is at least 150 percent of poverty.
    Finally, I think that at this time, any change in the GPO 
should only be considered as part of the broader context of 
long-term reform and extending the solvency of the Social 
Security program. This is because a change in the GPO would 
inherently involve changing the relative level of benefits for 
one group of beneficiaries over another.
    I want to again thank the Chairman and the Subcommittee for 
giving me this opportunity to discuss the GPO and to share 
SSA's analysis on the legislation before this Subcommittee. As 
always, I am more than happy to provide assistance to the 
Members and will be glad to work with you to provide any 
additional information you request. I would be glad to answer 
any questions you might have concerning the GPO provision.

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    Chairman Shaw. Thank you, Dr. Ross.
    We will go ahead with Dr. Cullinan's testimony and then 
take questions. Dr. Cullinan.

 STATEMENT OF PAUL R. CULLINAN, PH.D., CHIEF, HUMAN RESOURCES 
        COST ESTIMATE UNIT, CONGRESSIONAL BUDGET OFFICE

    Mr. Cullinan. Thank you. I am pleased to be here, Mr. 
Chairman, Representative Matsui, and Members of the 
Subcommittee. I ask that my full statement become part of the 
record, and I will summarize it now because much of what is in 
my testimony has already been brought up.
    One thing that we have to remember is the context in which 
the government pension offset, or GPO, was established. Back in 
1977, the Supreme Court's decision in Califano v. Goldfarb 
overturned the dependency test for men. There had been no 
dependency test for women, and there had to be a mechanism set 
up to try to deal with what was perceived to be an inequity. 
Unfortunately, what that did in some ways was to extend a 
dependency test for a group of beneficiaries--women who had 
service in noncovered Government employment--who had not 
previously been subject to a test.
    When the original statutes were set up for wives and 
widows, this test would not have been much of a problem. 
Married women were not participating very much in the workforce 
at that time, and government employment had not expanded to the 
degree that we have seen in the past 60 years. It is those two 
things that, in essence, have created the need for the 
government pension offset.
    The Congress enacted a gender-neutral provision. 
Nevertheless, that caused a great deal of difficulty for some 
people who had been anticipating much more in retirement than 
they amount for which they subsequently became eligible. So, 
since 1977, the GPO has been in place, but it has had many 
detractors and many affected beneficiaries have sought some 
relief from it.
    One point I want to make is that the government pension 
offset is not the only provision that affects people with 
noncovered pensions. The windfall elimination provision also 
affects some Social Security beneficiaries. That provision was 
enacted as part of the 1983 amendments to the Social Security 
Act. And there are many people who are confused about which 
provision is actually reducing their benefits. According to 
data from the Social Security Administration, at the moment the 
GPO directly affects about 305,000 recipients or potential 
recipients and the windfall elimination provision affects about 
half a million. So a great deal needs to be done to educate 
people who have some noncovered government service about what 
those offset provisions are and how their benefits might be 
affected.
    Let me go on to look at some of the potential options for 
changing the GPO. One of those is, of course, that we get rid 
of it. That would be a relatively expensive proposition. The 
Congressional Budget Office (CBO) estimates that it would cost 
more than $21 billion over the next 10 years. However, that is 
a very low estimate for the repeal option. The reason is that 
many people do not in fact apply for spousal benefits from 
Social Security because they know that under the GPO, they will 
not get a benefit from their spouse's service. So one must to 
be very cautious about any estimates of the cost of repealing 
the GPO because those are low.
    Another option is, of course, Mr. Jefferson's bill, which 
has been discussed here today. CBO's numbers for the cost of 
that bill are not that different from the Administration's. 
Although our estimate, is based on a 1 percent sample rather 
than on the entire population, as is the Social Security 
Administration's estimates, basically our estimate shows that 
H.R. 1217 would increase benefits for about 45 percent of the 
people who are affected by the GPO. CBO distinguishes in its 
estimates between those who would be completely out from under 
the offset and those who would still be partially affected. The 
figure of 25 percent of this affected by the GPO, which was 
referred to earlier, was only one of those components.
    A further option that has been mentioned is that the 
Congress could reduce the maximum reduction amount to one-half 
rather than two-thirds of the noncovered pension. That would be 
a much less inexpensive proposition than either of the other 
two alternatives. CBO estimates that reducing the maximum 
reduction amount would cost about $2 billion over the next 10 
years.
    Let me summarize my remarks with the following. The 
government pension offset is a blunt instrument designed to 
mitigate some of the effects of having a social security 
program without universal coverage. Some people with government 
pensions believe that they are being treated unfairly under the 
current system. Options to change the GPO, ranging from 
complete repeal to more limited modifications such as reducing 
the maximum percentage of the offset, are available. Each 
alternative entails new inequities or additional costs to the 
Social Security program, which already faces a substantial 
future shortfall in its finances. Any reform of the government 
pension offset thus requires careful consideration of the 
trade-offs. Thank you.
    [The prepared statement follows:]

STATEMENT OF PAUL R. CULLINAN, PH.D., CHIEF, HUMAN RESOURCES COST 
ESTIMATES UNIT, CONGRESSIONAL BUDGET OFFICE

    Mr. Chairman and Members of the Subcommittee, I am pleased 
to be here today to discuss an aspect of the current benefit 
structure of the Social Security program: the government 
pension offset, or GPO. The provision applies to people with 
pensions from government employment that was not covered by 
Social Security, and it curtails the benefits from certain 
features of the program that those people would otherwise 
enjoy.

    My testimony today focuses on three major questions:

     What is the offset, and how does it work?
     Who is affected by the offset?
     What are the alternatives to current law and their 
costs?

                 WHAT IS THE GPO, AND HOW DOES IT WORK?

    The GPO was enacted in 1977 and modified somewhat in the 
Social Security Amendments of 1983. The provision affects 
benefits for people who meet both of the following criteria:
     They receive pensions based on employment that was 
not covered by Social Security (termed noncovered employment)--
for example, federal workers who participate in the Civil 
Service Retirement System (CSRS) and a significant number of 
state and local government workers; and
     They are entitled to Social Security benefits 
because they are the spouse or survivor of an individual 
entitled to such benefits.
    In general, in the absence of any offset provision, the 
spouse of a retired or disabled worker may receive up to 50 
percent of that worker's Social Security benefit, and a 
surviving spouse may receive up to 100 percent. However, if the 
spouse has an earnings record and receives his or her own 
worker's benefit, then that benefit reduces spousal benefits 
dollar for dollar. This offset, known as the dual-entitlement 
provision, prevents the higher earner in a couple from 
receiving any auxiliary benefits and limits the spousal 
benefits paid to the lower earner.
    These benefits for wives and widows--often referred to as 
dependents' benefits--were enacted in the 1939 amendments to 
the Social Security Act, and they essentially presumed that a 
married woman would have little or no employment history of her 
own and would rely heavily on her husband's earnings. (More 
limited coverage for husbands and widowers was enacted in 
1950.) Even in 1939, the assumption about a wife's financial 
reliance on her husband was not always correct, but the 
exceptions probably were not glaring.
    Developments since 1939 have undermined that assumption. 
For example, over many decades, women's participation in the 
labor force has grown, and government employment that was not 
covered by Social Security expanded significantly during World 
War II and the postwar period. Thus, a gap in a woman's wage 
history under Social Security might no longer signal that her 
husband was the couple's only earner. Moreover, a man who 
earned a civil service pension was now more likely to be 
married to a woman who worked enough to become eligible for 
Social Security benefits in her own right. Still, the Congress 
did not address those facts until the Supreme Court held--in 
the 1977 Califano v. Goldfarb case--that the Social Security 
Act discriminated against men as beneficiaries and women as 
taxpayers. Women who qualified as wives or widows could get 
benefits automatically, but men who sought benefits as husbands 
or widowers had to show that they were previously dependent on 
their wives for at least one-half of their support. The 
Goldfarb case opened the door to a flood of claims by men who 
had civil service pensions or pensions from other noncovered 
employment and who could not have met the previous dependency 
test.
    The Congress addressed that problem in a gender-neutral 
fashion by enacting the government pension offset provision. 
Because the provision was gender neutral, women with pensions 
from noncovered employment who previously would have 
encountered no reduction in spousal benefits paid under Social 
Security now faced an offset to their benefits. The provision 
reduces (offsets) the spouse's or surviving spouse's Social 
Security benefit by an amount that is not permitted to exceed 
two-thirds of his or her noncovered pension. The one-third of 
the pension excluded from the offset acknowledges that part of 
the pension is akin to the private pension that many employers 
provide as a supplement to Social Security and that is not 
subject to an offset. Effectively, the GPO serves as an 
alternative to the dual-entitlement provision in cases in which 
one spouse has a significant period of noncovered employment on 
which a pension is based. (Table 1 shows examples of couples' 
benefits under the dual-entitlement provision and the GPO.)

The Windfall Elimination Provision

    The GPO is not the only provision in the Social Security 
Act that reduces benefits because someone receives a pension 
from noncovered employment. The other provision--the windfall 
elimination provision, or WEP--applies to a retired or disabled 
worker's own benefit rather than to his or her benefit as a 
spouse or survivor. Only a few pension annuitants are affected 
by both provisions, but many annuitants find them confusing.
    The WEP was enacted because many government workers have 
blended careers that qualify them for both a government pension 
and Social Security in their own right. Today, a 62-year-old 
needs just 40 quarters, or 10 years, of covered earnings of 
about $3,000 a year to qualify for a small retired-worker 
benefit under Social Security. The first step in computing a 
Social Security benefit is to index the worker's past earnings 
to today's dollars, pick the top 35 years of earnings, and 
average them. That step cannot distinguish, however, between a 
person who toiled for 35 years at low wages and someone who 
spent 25 years in the federal civil service and 10 years in a 
second career covered under Social Security.

   Table 1. Hypothetical Examples of Social Security Benefits with and
                  without the Government Pension Offset
                              [In dollars]

                                                Spouse 1      Spouse 2

Case 1: Couple with One Earner in Covered           1,000             0
 Employment Social Security benefit based on
 own earnings...............................
  Social Security benefit based on spouse's             0           500
   earnings.................................
  Pension based on covered employment.......          500             0
  Pension based on noncovered employment....            0             0
    Total Social Security/pension income....        1,500           500
Case 2: Couple with Two Earners in Covered
 Employment.................................
  Social Security benefit based on own              1,000           500
   earnings.................................
  Social Security benefit based on spouse's             0             0
   earnings a...............................
  Pension based on covered employment.......          500           200
  Pension based on noncovered employment....            0             0
    Total Social Security/pension income....        1,500           700
Case 3: Two-Earner Couple with Higher Earner
 in Noncovered Employment (No GPO in effect)
  Social Security benefit based on own                  0             0
   earnings.................................
  Social Security benefit based on spouse's           250             0
   earnings.................................
  Pension based on covered employment.......            0           200
  Pension based on noncovered employment....        1,500             0
    Total Social Security/pension income....        1,750           700
Case 4: Two-Earner Couple with Higher Earner
 in Noncovered Employment (GPO in effect)...
  Social Security benefit based on own                  0           500
   earnings.................................
  Social Security benefit based on spouse's             0             0
   earnings.................................
  Pension based on covered employment.......            0           200
  Pension based on noncovered employment....        1,500             0
    Total Social Security/pension income....        1,500           700


Source: Congressional Budget Office.

a No spousal benefits are payable to either spouse because the dual-
  entitlement provision totally offsets the benefit.


    Specifically, for a worker who turns 62 in 2000, the 
primary insurance amount (PIA), on which all Social Security 
benefits are based, is computed using a three-bracket formula:
     90 percent of the first $531 of average indexed 
monthly earnings; plus
     32 percent of such earnings between $531 and 
$3,202; plus
     15 percent of earnings above $3,202.
    If our hypothetical retiree spent 30 years in the federal 
civil service and 10 years in covered employment at an average 
indexed salary of $42,000, his or her covered earnings--
averaged over 35 years--would be $12,000 a year, or $1,000 a 
month. Under the formula, his PIA would be $628. And that would 
be on top of what could be a substantial civil service pension.
    The windfall elimination provision scales back the 90 
percent factor in the first bracket of the benefit formula for 
workers who have pensions based on noncovered employment. If a 
worker spent 20 years or less in covered work, the 90 percent 
factor is cut to 40 percent. For 21 through 29 years of covered 
work, that percentage (40 percent) rises by 5 points per year. 
Finally, the recipient of a noncovered pension who nevertheless 
spent 30 or more years in covered work is entitled to the 
regular 90 percent factor and is thus exempt from the WEP. For 
the purposes of the provision, a year of covered work in 2000 
requires earnings of at least $14,000. In the case of our 
hypothetical retiree, the WEP would reduce his or her PIA by 
$265. Roughly one-half million Social Security recipients are 
currently affected by the WEP, and that number is growing by 
about 60,000 annually.

 Features of the Social Security Program That Give Rise to the GPO and 
                                the WEP

    The perceived need for provisions such as the GPO and the 
WEP arises from three characteristics of the Social Security 
program:
     Not all workers are covered under Social Security, 
and the majority of noncovered workers are employees of 
federal, state, or local governments.
     Social Security provides benefits to spouses and 
survivors of retired and disabled workers without reducing 
those workers' own benefits.
     The benefit formula is weighted to replace a 
greater percentage of earnings for beneficiaries with low 
lifetime earnings.
    Coverage. According to the Social Security Administration 
(SSA), about 96 percent of the workforce is employed in jobs 
covered by Social Security. The other 4 percent is mostly 
employed by state and local governments (which account for 
about one-half of those remaining workers, or over 3 million 
employees) or by the federal government (which employs about 15 
percent, or roughly 1 million people). Those figures represent 
a single year, and they understate the percentage of workers 
who move between covered and noncovered employment during their 
lifetime. Therefore, many workers who receive pensions from 
noncovered employment also work long enough in covered 
employment to gain insured status under Social Security. 
Indeed, a 1997 study published in the Social Security Bulletin 
indicated that over two-thirds of federal civil service 
retirees ages 65 to 69 were also entitled to Social Security 
benefits on the basis of their work history.
    Auxiliary Benefits. Social Security, unlike most private 
and public pensions, pays additional amounts to the families of 
insured workers without reducing the workers' own benefits. As 
noted earlier, the spouse of a retired or disabled worker is 
eligible to receive a benefit equal to one-half of the basic 
Social Security benefit paid to that worker, and a survivor can 
receive the entire benefit. But with a typical private or 
public pension, a worker must elect a ``joint and survivor'' 
annuity to ensure benefits for a widow or widower and must 
accept, in turn, a smaller benefit over his or her own 
lifetime.
    Weighting of the Benefit Formula. As described earlier, 
Social Security benefits are calculated by using a three-
bracket formula that translates average indexed monthly 
earnings over a 35-year period into a basic benefit amount, or 
PIA. That formula is progressive, and the weighting is designed 
to help low-wage workers. However, the formula also provides an 
advantage to the annuitant who moves into covered employment 
and qualifies for retirement benefits under Social Security on 
the basis of a fraction of his or her working life.
    Each of the above features of the Social Security system 
contributes to the argument that noncovered government pensions 
should be factored into the calculation of Social Security 
benefits. For example, if Social Security coverage were 
universal, the existing dual-entitlement provision would serve 
the same purpose as the GPO. If there were no benefits for 
spouses or surviving spouses, the marital status of the person 
with the pension from noncovered employment would be irrelevant 
in figuring Social Security benefits. And because the benefit 
formula is weighted rather than strictly proportional to 
earnings, workers with low average earnings have an advantage, 
regardless of whether the average reflects a lifetime of low-
wage employment or a short period of covered work.

                      Who is Affected by the GPO?

    Because Social Security coverage is so extensive, the 
government pension offset does not affect a significant 
proportion of the program's roughly 45 million recipients. But 
for those who are affected, the provision makes a huge 
difference. The Congressional Budget Office's (CBO's) 
tabulations of data supplied by SSA indicate that at the end of 
1999, the GPO was reducing Social Security benefits for about 
305,000 people (see Table 2). In about 225,000 cases, or three-
quarters of that total, the GPO caused potential benefits to be 
completely

             Table 2. Social Security Cases Affected by the Government Pension Offset, December 1999

                                                           Cases with
                               Total Cases                  Partially                  Cases with
                               Affected by                   Offset                   Fully Offset
                                 the GPO                    Benefits                    Benefits

By Marital                                      Average                     Average                     Average
Status                             Number        Offset        Number        Offset        Number        Offset
  Wives                           124,300          $314        30,600          $233        93,700          $341
  Husbands                         61,300          $218           900          $206        60,400          $218
  Widows                           89,300          $477        47,300          $403        42,000          $557
  Widowers                        329,800          $379         1,300          $411       328,500          $380

    Total                         304,700          $348        80,100          $336       224,600          $353

By Sex
  Women                           213,600          $382        77,900          $336       135,700          $408
  Men                              91,100          $270         2,200          $339        88,900          $268


Source: Congressional Budget Office based on the One-Percent Monthly Old-Age, Survivors, and Disability
  Insurance Sample file, December 1999.

    withheld; the average loss was $353 per month. The 
remaining 80,000 recipients continued to be paid some benefits 
even after the GPO was applied, with the reduction averaging 
$336 per month.
    What the data do not reveal are those annuitants with 
pensions from public-sector jobs who do not apply for Social 
Security because they are aware that the GPO would wipe out any 
spousal benefits to which they would otherwise have been 
entitled. Therefore, any counts of people affected by the GPO 
and any estimates of the costs of altering it are likely to 
understate the potential effects of such changes. Moreover, 
that understatement could be substantial for major changes such 
as a complete repeal of the GPO.
    CBO's analysis of the SSA data revealed some differences in 
how the GPO affected men and women. Seventy percent of the 
affected beneficiaries reflected in the data were women, and 
women were more likely than men to experience a reduction 
(rather than a complete withholding) of their benefit. Benefits 
were totally withheld for almost two-thirds of the women 
affected by the GPO; the comparable figure for men was 98 
percent. Partial offsets were much more likely to occur for 
widows or widowers (41 percent) than for spouses (17 percent), 
simply because Social Security provides larger benefits to 
survivors.
    The SSA data do not reveal the source of the government 
pension paid to people who are subject to the offset. But by 
matching records with the Office of Personnel Management for 
June 1996, SSA researchers found that the GPO reduced Social 
Security benefits for 116,000 former federal employees who 
received civil service pensions. That figure appeared to 
represent a little less than half of the people who were 
affected by the GPO in 1996.
    The number of people subject to the GPO has climbed by 
about 15,000 (or about 6 percent) per year. Over time, that 
growth will fade since all federal civil servants hired after 
1983 (and some who were hired earlier and opted to switch) are 
covered by Social Security in combination with the Federal 
Employees' Retirement System. But the slackening of growth in 
the number of affected people will take many decades to play 
out.

       What are the Alternatives to Current Law and Their Costs?

    The government pension offset is a relatively simple way to 
trim spousal benefits paid to some two-career couples, but it 
has many detractors. Some critics believe that it reneges on 
the implied promise of Social Security, under which benefits 
accrue from working and paying taxes and those benefits are an 
``earned right.'' Others contend that it is unfair to treat 
pensions from noncovered employment differently from other 
pensions or even from dividends, interest, and royalties. Still 
others argue that although it might be desirable to limit 
spousal benefits for people with relatively large government 
pensions, the GPO distinguishes the percentage reduction 
neither by the size of the pension nor by the total income of 
the annuitant.
    Approaches other than the GPO may be feasible for 
addressing the underlying problems it was meant to solve, but 
such approaches cost money and often introduce new complexities 
or inequities. One obvious alternative is to eliminate the GPO 
altogether. The drawbacks to that option are its cost and, to 
many analysts, the inappropriateness of paying full benefits to 
people who worked only a fraction of their careers in covered 
employment (see Table 3). Eliminating the GPO would cost at 
least $21 billion (probably substantially more) over the next 
10 years, CBO estimates, and would increase the 75-year 
shortfall in the Social Security trust funds by 0.03 percent of 
taxable payroll. Although that increment is small in comparison 
with the overall imbalance in the program (1.89 percent of 
taxable payroll), repealing the GPO would make it more 
difficult for the country to address the looming fiscal burden 
posed by the aging of the baby boomers.
    Another approach might seek to shield lower-income 
beneficiaries from the full brunt of the offset. H.R. 1217, as 
introduced by Representative William J. Jefferson, is an 
example of that strategy. The bill would base the reduction in 
benefits on the combined amount of Social Security and the 
noncovered pension; because SSA now collects that same 
information to calculate the offsets, no new data collection 
system would have to be developed. Other income, such as 
interest and dividends, would be irrelevant in calculating 
benefits--just as it is in such calculations for other 
beneficiaries.

                               Table 3.--Estimated Costs of Various Alternatives to the Current Government Pension Offset
                                                        [By fiscal year, in billions of dollars]

                                                                                                                                                 Total,
                                                       2001     2002     2003     2004     2005     2006     2007     2008     2009     2010   2001-2010

Repeal the GPO.....................................     1.1      1.5      1.7      1.8      2.0      2.2      2.4      2.6      2.8      3.1      21.3

Limit Reductions                                        0.2      0.4      0.4      0.4      0.5      0.5      0.6      0.6      0.7      0.7       4.9
to Beneficiaries
Whose Combined
Monthly Benefits
and Pension
Exceed
$1,200
(H.R. 1217)........................................

Reduce the                                              0.1      0.1      0.2      0.2      0.2      0.2      0.2      0.3      0.3      0.3       2.0
Maximum Offset
to One-Half of the
Government
Pension............................................


Source: Congressional Budget Office.

NOTES: The proposals would take effect in January 2001.

    These estimates all understate the true costs of the 
options since the estimates do not take into account the 
options' effects on people who do not apply for benefits 
because of the GPO. That understatement is likely to be 
substantial for the repeal option.
    H.R. 1217 would limit reductions under the GPO to 
beneficiaries whose total unreduced Social Security benefit and 
government pension exceeded $1,200 a month. Under that 
provision, about 25 percent of those affected under current law 
would be exempt from the GPO, and another 20 percent would see 
a boost in their benefits. CBO estimates that H.R. 1217 would 
increase Social Security outlays by at least $4.9 billion over 
the 2001-2010 period; the Social Security actuaries estimate 
that, over the next 75 years, the costs would be negligible 
(less than 0.005 percent of taxable payroll).
    Lowering the maximum offset to one-half rather than two-
thirds of the noncovered pension is another alternative. That 
change would increase benefits for about two-fifths of those 
affected under current law and add at least $2 billion in costs 
to the program over the next decade. The long-term impact would 
be insignificant.
    A further option, but one that is rarely put forward, would 
restore an explicit dependency test for spousal benefits. If 
the test was similar to the one used before 1977, but covered 
all spousal benefits, it would require spouses to demonstrate 
that at least one-half of their support came from their marital 
partner. Because that requirement would apply to both men and 
women, it would probably pass the test of constitutionality, 
but implementing it would be both administratively burdensome 
and expensive.

                               CONCLUSION

    The government pension offset is a blunt instrument 
designed to mitigate some of the effects of having a social 
security program without universal coverage. Some people with 
government pensions believe that they are being treated 
unfairly under the current system. Options to change the GPO 
range from complete repeal to more limited modifications such 
as reducing the maximum percentage of the offset. Each 
alternative entails other inequities or additional costs to the 
Social Security program, which already faces a significant 
funding shortfall. Any reform of the government pension offset 
thus requires careful consideration of those trade-offs.
      

                                


    Chairman Shaw. Thank you, Dr. Cullinan.
    Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Mr. Matsui. Dr. Ross, if we eliminate or make a major 
alteration to the GPO, would you expect, and I guess I am 
asking you a political question, that then we would be asked to 
deal with the dual entitlement provision situation in order to 
try to equalize both spouses receiving Social Security 
benefits? Is that the fear the Social Security Administration 
has?
    Ms. Ross. I do not think that we have tended to think about 
it like that. We think, starting with the dual entitlement 
benefit, there were certainly at the beginning of the system 
reasons to have dependence benefits, but there was also a very 
sensible rationale for not having a one person have a full 
worker's benefit and a full dependence benefit, because clearly 
they were not entitled. I think it is for the Congress to 
decide if they think that rationale still holds. I certainly 
do. We certainly support the GPO as a way to apply that same 
kind of rationale.
    So I assume that as people think about this carefully, they 
will decide that they want to be able to measure people's 
dependency in some way and treat both of these groups fairly. 
So I do not anticipate either one would go down, and certainly 
not that the dual entitlement is under threat.
    Mr. Matsui. I think I asked you an unfair question because 
you are supposed to give us the factual information. I 
appreciate it. It was really a political question I asked you.
    I share your concerns, and that is why I think your comment 
at the end that we need to deal with this issue 
comprehensively, or should deal with this issue comprehensively 
perhaps makes sense. Because the next thing we will do is we 
will hear from where you have one of the spouse's receiving 
social security benefits and then the spouse's benefits have 
been cut back and that person then will say my neighbor across 
the street worked for the State Government, State of 
California, which is not in Social Security, gets everything 
and I do not. And so we will hear from more people perhaps. And 
I am concerned about that because we are singling out one group 
over another. I know that the GPO was originally, I was not 
aware of this a month ago, but now I understand it, it was 
originally set up to try to equalize benefits where you do not 
have both parties in the Social Security system. So I share 
your concerns. But it is very difficult to explain that.
    Ms. Ross. It is difficult. Let me just say that I think 
there is a very legitimate concern about certain groups within 
the retiree population who have low incomes. For example, 
widows overall have a poverty rate of 20 percent or more. That 
is something we are worried about. But restricting our concern 
to the subgroup that is in the Government Pension Offset does 
not seem like a very target-efficient way to work on this 
poverty reduction. I think there are more effective ways to 
deal with the really serious concerns about poverty in the 
elderly population.
    Mr. Matsui. One other problem I see is that those States in 
which the State or local entities do not have Social Security 
but their own private Government pension systems, there will be 
pressure to put them within Social Security if we give them 
this additional benefit. And so it puts more pressure on it to 
some extent to go into the system in terms of how we are going 
to find revenues in order to shore up this deficit. And I know 
you cannot comment on that either, that is just a comment made 
by me because I can see a political discussion about that in 
the future if that should happen.
    Mr. Matsui. I appreciate both of your testimonies.
    Mr.  Portman [presiding]. Mr. McCrery.
    Mr. McCrery. Ms. Ross, maybe I heard you wrong, but I 
thought you said that the five year cost of the Jefferson bill 
would be $2-something billion.
    Ms. Ross. Yes, $2.3 billion.
    Mr. McCrery. $2.3 billion. But the long-term costs were 
negligible?
    Ms. Ross. That is right. Negligible does not mean that 
costs are zero, it means that they are less than .005 percent 
of payroll over a 75-year period.
    Mr. McCrery. Okay. The ten year costs I noticed that are 
estimated by CBO are more than double the $2.3 five year costs 
the Social Security Administration estimates. Can you give us 
some idea of the long-term nominal costs. Is it arithmetic or 
does it just double every five years?
    Ms. Ross. Our own ten year estimates are that it moves to 
almost $6 billion over ten years. So as there are more people 
receiving benefits and becoming eligible for this, the number 
goes up. But I do not have a progression beyond the five year, 
then the ten year, and then the long-term.
    Mr. McCrery. Do you have any estimates of what the cost 
would be if we were to treat the dual entitlement status the 
same as the GPO under Jefferson's bill?
    Ms. Ross. It would be $100 billion over five years. The 
thing to keep in mind is that right now, 5.7 million 
beneficiaries are dually entitled, that is receiving both a 
worker's and a spouse's benefit. So the numbers of people you 
are talking about are extraordinarily large.
    Mr. McCrery. Okay. Would either of you, or both, like to 
comment on the policy rationale for treating the GPO recipients 
different from the dual entitlement recipients. Is there a 
policy rationale? Or in your opinion is there a sound rationale 
for keeping them t redhead as they are today, keeping them 
treated equally?
    Ms. Ross. Social Security's opinion on this is that we 
think the GPO works pretty well as an approximate measure to do 
the same thing that dual entitlement does. It is not a fine 
tuned measure. If you could do it exactly, you would have every 
single worker's total wage history from covered and noncovered 
employment and you could make a perfect calculation of what 
they would receive if they were dually entitled and offset it 
that way. We do not have those kinds of records. We cannot do 
it this way. As Paul Cullinan said, the GPO is somewhat of a 
blunt instrument. But there have been two studies that have 
been conducted, one on Federal workers, and one using same 
State and local teachers where a wage level is assigned for 
people's whole lifetimes. We calculated what Social Security 
benefits would have been if they had instead worked in covered 
employment, and received Social Security worker's benefits. We 
have concluded that the two-thirds is not a perfect figure, but 
it is a rough approximation for what people would get if they 
had worked an average wage level and had a typical earnings 
history in noncovered employment. So we are certainly not 
telling you that it is perfect. But we are saying we think it 
is a good approximation.
    Mr. McCrery. Anything you would like to add, Dr. Cullinan?
    Mr. Cullinan. No, thank you.
    Mr. McCrery. Thank you, Mr. Chairman.
    Mr.  Portman. Mr. Cardin.
    Mr. Cardin. Thank you, Mr. Chairman. Whenever we do rough 
approximations we get ourselves into trouble because two of my 
constituents will come up to me in similar circumstances and 
are treated differently and they do not quite understand why. 
So I really do appreciate what Mr. Jefferson is trying to do 
because I have heard it from a lot of my constituents.
    On the other hand, I am concerned that we do not create 
another notch-type of an issue for us that never seems to go 
away. I would hope that as we go through the panels today we 
will hear more of how we can correct this issue without 
creating a continuing problem for us with our constituents. I 
think the issue that you raise, Dr. Ross, in your response to 
Mr. McCrery, that we do not have the wage records that we can 
make a perfect match, I appreciate that. It would be too 
complicated and too expensive to do that. Those that are in the 
GPO are a much smaller number than those that would be dual 
entitlement.
    But it seems to me that we are going to have to be able to 
address the issues of all of our constituents to make sure they 
are being treated fairly. And I would hope that we would try to 
come up with a solution that will be respected by our 
constituents and not create the wherewithal that we are going 
to have a lot of new groups formed sending letters to our 
seniors requesting donations in order to fight Congress to 
change the law. That really worries me because I do not think 
our seniors have been well-served on the notch issue over the 
years and I do not want to see that happen with this issue as 
we move forward.
    I think this is an extremely important hearing. I 
appreciate both of your testimonies. I hope that we can come up 
with a solution. We are dealing with very low income people who 
are very vulnerable and we should do what we can to correct the 
situation.
    Mr.  Portman. Mr. Hulshof.
    Mr. Hulshof. Thank you, Mr. Chairman. Let me just say in 
Missouri that I have a very active chapter of Federal retirees, 
and look forward to the next panel. And Mr. Jefferson, you are 
very well thought of in my district. I am kind of glad you do 
not live there.
    [Laughter.]
    Mr. Hulshof. What I want to ask you, Dr. Ross, is that in 
your testimony on Mr. Jefferson's bill you indicated it is not 
well-targeted at low income elderly beneficiaries, especially 
widows. This is pretty important because I know Mr. Jefferson 
designed this bill specifically to shield low income workers 
from the GPO. So can you explain to me why you believe that Mr. 
Jefferson's bill does not achieve that goal.
    Ms. Ross. Basically, what Mr. Jefferson's bill does is look 
at combined retirement income that people would be receiving 
from Social Security and the noncovered pension. We had an 
opportunity to look at people who were covered by the 
Government Pension Offset and look at their entire income so we 
had a better measure of their need and of whether they were in 
poverty or what their income was. And by having a more complete 
look at the family income, it suggests that looking at those 
two sources of income does not target the benefit very well. As 
I said before, 90 percent of the people who are helped by H.R. 
1217 have incomes above poverty level. I certainly agree with 
Mr. Jefferson that poverty level is not necessarily the goal, 
but it is an indication of how target effective you are being.
    Mr. Hulshof. Dr. Cullinan, let me ask you, I think, 
anticipating our next panel, our witnesses on the next panel 
will say that the two-thirds offset in the GPO calculation is 
somewhat arbitrary. I know Mr. McCrery asked Dr. Ross a little 
bit about the rationale. And then again, going back to Mr. 
Jefferson's bill, which has attracted a lot of attention back 
home, eliminating the GPO for retirees whose combined 
Government pension and spousal benefit is less than $1,200, 
what is your thought about having that threshold, that $1,200 
income threshold?
    Mr. Cullinan. I do not know the exact logic that was used 
to derive the $1,200 threshold. It certainly pares down the 
GPO-affected population who would get some relief from Mr. 
Jefferson's bill. About half of the people now affected would 
get some benefit from an income threshold life that, and that 
option might cost only a quarter of what it would cost to 
repeal the GPO. So it is a way of targeting the benefit.
    I am not sure though, whether a $1,200 threshold is as 
appropriate in some cases as it is in others. You might want to 
have different thresholds for purposes of spouse's benefits 
than for surviving spouse's benefits. If you think about the 
example that Dr. Ross presented earlier, we had a woman who as 
a spouse was going to get $1,200 from of her combined 
noncovered pension and Social Security benefits, but she had a 
spouse who was alive and who had a $1,400 Social Security 
benefit. You might view that a little differently from than a 
surviving spouse who had only $1,200 in benefits. So I think 
that there are some issues there that need to be looked at.
    Mr. Hulshof. On that point, a couple of different 
approaches to modifying the Government Pension Offset, either 
reducing or eliminating the GPO for people whose combined 
pension income falls below a certain threshold income amount, 
which we have talked about, but another alternative is actually 
to lower the size of the offset from two-thirds to some other 
lower percentage. Pros and cons to that approach, Dr. Cullinan?
    Mr. Cullinan. I would go back a little bit to what Dr. Ross 
said--that in their study, a reduction of roughly two-thirds 
seemed like an appropriate number. But individual circumstances 
can be so different when people have mixed careers. Almost 10 
years ago, the Congressional Research Service looked at a set 
of typical civil service annuitants and what the appropriate 
reduction would be. The proportion of the civil service benefit 
that might approximate what the Social Security benefit would 
be ranged from 127 percent of the civil service benefit to as 
low as 17 percent.
    The problem is that offsets like the GPO are blunt 
instruments. It is very difficult in a nearly universal program 
to construct such instruments so that their application in 
every case is considered to be--roughly--fair.
    Mr. Hulshof. Thank you, Mr. Chairman.
    Mr.  Portman. Mr. Hayworth, would you like to inquire of 
this panel?
    Mr. Hayworth. Yes, sir, I would. I am running a little bit 
late.
    Thank you for coming. I apologize for being late. I guess 
cloning would work on Capitol Hill; we could all be in several 
different places at once. Some folks, especially my political 
opponents, I think actually advocate vivisection for me. But 
that is beside the point.
    As I understand it, your testimony highlights some of SSA's 
efforts to educate Government workers about the GPO. But 
despite these efforts, many Government workers are not aware of 
the GPO until they retire and apply for benefits. Is SSA taking 
any steps to help improve the education process?
    Ms. Ross. The Social Security Administration is doing 
several things. One, in the new Social Security benefit 
statement, which started to be mailed to workers in October of 
last year, every single statement alerts people, if they read 
it carefully, that they may have this offset if they have had 
work in noncovered employment. We have a couple of really good 
pamphlets which are now on our Web site. That should help. We 
also work very closely with people from the Office of Personnel 
Management with regard to Federal retirees so the information 
is conveyed. We work with the unions at the State and local 
level, especially AFSCME.
    So we are trying to inform the public of this provision of 
law that has been out there for 23 years, we are trying very 
hard. But I also understand that people are caught by surprise. 
So we have not done as well as we could have.
    Mr. Hayworth. In terms of the pamphlets and written 
communication, Dr. Ross, is there anything that sets that off? 
Is the terminology emboldened or in capital letters to make 
people aware of this? Would that type of script and font change 
perhaps highlight this?
    Ms. Ross. If you have suggestions, we are willing to look 
at them because we really want people to be alerted to this.
    Mr. Hayworth. Great. If it is okay, if your folks could 
send over the communications that exist on this, maybe there is 
just something that we could t weak a little bit to give it the 
prominence it needs to make sure it is out there and highlight 
it. I would be very happy to work with you on that. Thank you.
    Ms. Ross. Absolutely. Okay. Perfect.
    Mr. Hayworth. Thank you, Mr. Chairman.
    [The information is being retained in the Committee files.]
    Mr.  Portman. Mr. Levin, would you like to inquire of this 
panel?
    Mr. Levin. Just catching up here. Thanks.
    As we have looked this over, I just wanted to ask you one 
question that often comes up. What is the basis for the two-
thirds in the first place? Do you want to comment on that?
    Ms. Ross. I would be glad to. In the original legislation 
in 1977, the offset was dollar for dollar, so it was 100 
percent. The issue was rediscussed in the Congress and, as I 
understand it, the House said one-third, the Senate said 
nothing, and the compromise was two-thirds, which would suggest 
that it possibly was not exactly the perfect measure.
    But we do have two pieces of information since that time. 
The Congressional Research Service did a study of Federal 
workers, we have done a study of State workers, and while, as 
Dr. Cullinan said, the appropriate measure is very different 
for each individual, two-thirds is a relatively good rough 
approximation if you have to have one proportion by which you 
are offsetting benefits. So while the two-thirds level was 
determined in a legislative context, subsequent analytical work 
suggests that it seems appropriate.
    Mr. Levin. So while there may not have been an analytical 
basis for it-there isn't always when we strike compromises 
here-you think that the data you have looked at would indicate 
that if one has to use a figure that applies to everybody, that 
this is a somewhat appropriate figure?
    Ms. Ross. Since you have to pick one figure, we think it is 
an appropriate figure. Maybe I did not do your question justice 
before. When you are trying to think about what two-thirds 
represents, I should just say that what you are trying to 
measure there is what proportion of a Government pension is an 
approximation of the Social Security benefit as contrasted with 
the private pension. So what we were trying to do was figure 
out what people's Social Security benefits would be if they had 
earned all this money under covered employment. So what we 
tried to figure out was what proportion would be the Social 
Security benefit. We believe that the two-thirds measure that 
Congress came up with roughly approximate based on an average 
wage for a typical 20-year-career government employee.
    Mr. Levin. Thank you.
    Mr.  Portman. Dr. Ross, if I could follow up on a couple of 
these questions. First is following up on Mr. Hayworth's 
question about notice. I think one of the things that this 
panel would agree on, and I think all of our panelists will 
today, is that there is a problem with regard to notifying 
people as to what their retirement security situation is going 
to be based on this offset. People are not aware of it. And you 
indicate that your statements have the information, you said in 
response to Mr. Hayworth, if they read it carefully, and Mr. 
Hayworth talked about maybe putting in bold print and so on. We 
have got testimony coming up from Mr. Keane, who is the 
administrator of the Jacksonville, Florida, Police and Fire 
Pension Fund, where he says that the Social Security estimates 
sent to individuals often does not include the GPO.
    First of all, my question is, is that accurate? Do 
statements sometimes go out without the GPO information 
included.
    Ms. Ross. There is language in the Social Security 
statement that tells people that they may have this offset. We 
do not for any individual calculate their benefit with the 
offset because we do not have in our possession the information 
that would allow us to know if people are going to be subject 
to the Government Pension Offset. Again in an ideal world, if 
we had all the information, we could do that. But we do not 
have the information to provide an individual with that 
calculation.
    Mr.  Portman. Because you do not have the spousal benefit?
    Ms. Ross. Because we do not have their earnings under 
noncovered employment.
    Mr.  Portman. It just seems to me this is one area where, 
this is a very complex, difficult issue to deal with and we 
came up with a solution of two-thirds back in 1977 and modified 
in 1983 to tried to make this more equal between those who were 
covered by the Social Security dual entitlement provision and 
those who were not. But at the very least, we have got to do a 
better job of providing notice. Any recommendations you have in 
that regard to this subcommittee would be much appreciated in 
terms of legislation. At a minimum, we ought to do a better job 
in that category so people can plan for their retirement.
    The other question I have would just be a general one as to 
which way we ought to go on this. Dr. Cullinan talked about the 
possibility of going to one-half rather than two-thirds, which 
would again be relatively arbitrary but some sense of justice 
maybe for people who are particularly hard hit by this. You 
indicated it would be about a $2 billion cost, Dr. Cullinan, 
over did you say a five year period?
    Mr. Cullinan. No, that figure covered a 10-year period.
    Mr.  Portman. Ten year, $2 billion. Is it more targeted?
    Mr. Cullinan. I am not sure exactly what you mean by 
targeted. Compared with Mr. Jefferson's bill with its income 
threshold, changing the maximum reduction would not be as 
direct. Whether that kind of change would be fairer than Mr. 
Jefferson's is not clear.
    Mr.  Portman. I heard what you said earlier to indicate 
that you thought maybe that would be more targeted than the 
$1,200 threshold.
    Mr. Cullinan. I think what I meant is that it would be more 
targeted in the sense of costs rather than targeted in the 
sense of providing relief to more direct people to whom you 
might want to direct additional benefits.
    Mr.  Portman. What is the equivalent Jefferson number for 
that $2 billion figure?
    Mr. Cullinan. It is almost $5 billion.
    Mr.  Portman. Okay. Although Jefferson is 25 percent of 
total repeal.
    Mr. Cullinan. That is correct.
    Mr.  Portman. The total repeal would be much more than 
that. But you think that the $1,200 perhaps targets those folks 
who need it the most, which would be low income.
    Mr. Cullinan. Unfortunately, the $1,200 threshold does not 
apply to family income but to income from two sources relevant 
to the individual. So the threshold is imprecise in terms of 
targeting relief toward low income people because it does not 
have all the information you would want to be able to do that.
    Mr.  Portman. The information that you have, Dr. Ross, it 
says that the Jefferson bill is not that targeted in the sense 
that you say 90 percent of those who would benefit are above 
the poverty line?
    Ms. Ross. Yes.
    Mr.  Portman. How can you come up with that information, 
that data without knowing all of the various sources of income? 
And just as we come up with a more targeted way to determine 
total income, how can you come up with that 90 percent figure?
    Ms. Ross. Well, we used a national survey. So we do not 
have this data for the entire population, but we have it from a 
nationally representative survey for which we could gather all 
these pieces of information, and because it is nationally 
representative, we can tell you what it would be for the 
population at large.
    Mr.  Portman. These were survey results that the Social 
Security Administration used from a private firm, or did you do 
it yourselves?
    Ms. Ross. It is a Census Bureau survey to which we have 
linked all of our own administrative data.
    Mr.  Portman. Small margin of error because you have such a 
large sample?
    Ms. Ross. There is certainly some margin of error.
    Mr.  Portman. Okay. I was just interested in that. I did 
not see it in your testimony and wondered. Because that is our 
great difficulty I think is how to target this. To the extent 
we can come up with a way to figure out total income, I guess 
it could be more targeted, more fair, and in the end would have 
less of an impact on the Social Security Trust Fund and on our 
budget generally. But it is impossible to do I guess, correct? 
In other words, to come up with total family income 
administratively, would that be too difficult to do?
    Mr. Cullinan. We would definitely need to have some changes 
in law to get all of the information needed for that type of 
comprehensive approach.
    If I might, I would like to point out one other thing about 
the GPO. Here in Washington, we frequently become focused on 
Federal employees, but they are a minority of those currently 
affected by the GPO. Since we have changed the retirement 
system for Federal employees, in the long run the GPO it will 
not be a civil service issue but a state and local issue. In 
addition the pension plans that are out there are very diverse; 
what we are looking at now might not be the situation we should 
be thinking about if we are going to be changing the GPO for 
future beneficiaries.
    Mr.  Portman. I appreciate that. Again, as someone 
representing a State that has a lot of noncovered State and 
local employees, most of my input actually does not come from 
the Federal workers, it comes more from our State and local 
government workers. And it comes from low income workers, 
mostly widows who have a spousal benefit that is reduced 
significantly. One case I know, this woman has a $300 pension 
and because of the two-thirds offset, she ends up with about 
$34 in Social Security from the spouse. That is not enough to 
live on. So that is the situation I think a lot of us from 
California, Ohio, and other places are hearing about, and that 
will continue from what you have said despite some changes in 
civil service at the Federal level.
    But I do appreciate your testimony. One other option to 
throw out there, is there a way to move the $1,200 down to 
reduce the cost and make it more targeted, knowing again the 
arbitrary aspect to this because we do not know what the family 
income is. But what if you moved it from $1,200 to $1,000?
    Mr. Cullinan. We have not looked at that, but if you would 
like, we could do some work, and get back to you on it.
    [The information follows:]

    Dr. Cullinan: If the threshold was lowered to $1,000 per 
month, CBO estimates that the bill would increase Social 
Security outlays by $2.8 billion over the next 10 years, 
compared with $4.9 billion for H.R. 1271 as introduced. The 
lower threshold would benefit an estimated 30 percent of the 
people affected by the offset under current law, rather than 45 
percent, CBO's estimate under the original bill.

    Mr.  Portman. I think it might be helpful to have that in 
the potential solutions to this problem because it seems like 
all the other ones create the same kind of problems that Mr. 
Cardin mentioned earlier that we are dealing with now on other 
Social Security changes that have been made over the years 
because they are relatively arbitrary and at some point there 
is a cliff, the nosh babies is the example he used. But we 
ought to look at that option as well I think.
    Ms. Ross. We would certainly also be happy to work with you 
or with Mr. Jefferson on other ways to do this. But I would say 
again that another way to frame this is to look at the 
particular groups of people, whether it is low-earner women or 
whether it is widows, and you would get a way from some of the 
problems of your GPO dual entitlement conflict if you look at a 
particular target group that itself has low income. And we 
would be glad to help you look at that as well.
    Mr.  Portman. We appreciate it.
    Mr. Matsui?
    Mr. Matsui. Thank you. Dr. Ross, I want to just follow up 
on that last comment that you made. You are suggesting that 
rather than make the differentiation between a couple that are 
both under Social Security and a couple in which one has Social 
Security and the other has a non-Social Security pension, you 
are suggesting we not make that differentiation, but instead 
make a differentiation based upon income levels. Is that what 
you are saying?
    Ms. Ross. Yes. What I am saying is that there are people 
about whom I know you are concerned, who are subject to the 
Government Pension Offset provision, but there are equally poor 
individuals and actually quite a few more of them in the dually 
entitled category. So if you are trying to address the poverty 
issue or a low income issue, there are ways to do it so that we 
do not treat one of those two groups differently from the 
other.
    Mr. Matsui. If I may, Mr. Chairman, one of my concerns, not 
with your testimony, but one of my concerns with this issue is 
that if we treat those that fall within the GPO in a certain 
way, then I think we have an obligation to treat those that 
receive two Social Security benefits the same way. It is all 
the same in terms of income levels. We have a lot of widows 
right now that are really at the threshold. To put money in one 
area and not the other seems to me somewhat--we need to look at 
this. I just think we need to look at it in a comprehensive 
way. And it is somewhat troubling to me that we would handle 
one but not the other.
    I appreciate your testimony because, through this graph you 
really vividly raise the problem here. It is, I think as Mr. 
Cardin suggested, perhaps a notch baby situation where one 
party feels that he or she has been treated inequitably, but 
then if you deal with that issue you create another inequity in 
another area.
    Ms. Ross. Right.
    Mr. Matsui. I think we really need to look at this in a 
comprehensive way. And I am a cosponsor of Mr. Jefferson's 
legislation and I think he has a legitimate issue that he has 
raised here. But on the other hand, I think others do as well. 
So I appreciate this.
    Ms. Ross. Thank you.
    Chairman Shaw. It is indeed a difficult issue. I thank you 
both very much, and Dr. Ross. Again, thank you for helping us 
out with our time limitations.
    [Questions submitted by Chairman Shaw, and Mr. Cullinan's 
and Ms. Ross's answers, follow:]

Paul R. Cullinan, Congressional Budget Office

    1. The Social Security program is a redistributional 
program. In other words, it redistributes money between 
different groups of workers, such as from younger generations 
to older generations, from dual-income couples to one-earner 
couples, and from higher-earners to lower-earners. How does the 
GPO redistribute income in the Social Security program? How 
would the elimination or reduction of the GPO affect this 
redistribution?
    Answer: The government pension offset (GPO) was enacted in 
1977 in response to the Supreme Court's decision in Goldfarb v. 
Califano, in which Mr. Goldfarb contended that the Social 
Security Act discriminated against men when providing benefits 
to spouses and surviving spouses. The law at that time required 
men, but not women, to demonstrate that they depended on their 
spouse's income for more than one-half of their support in 
order to be eligible for benefits as a spouse or surviving 
spouse. One of the main reasons men were not able to meet the 
dependency test was that many received pensions from government 
employment that was not covered by Social Security.
    The GPO was the Congress's response to the Goldfarb 
decision and was modeled after the dual-entitlement rules that 
already existed under Social Security. Under those rules, a 
worker's own Social Security benefit offsets dollar for dollar 
any potential benefits he or she may receive as a spouse. 
Today, the GPO (following the Social Security amendments of 
1983) is a dollar-for-dollar offset of Social Security spousal 
benefits for as much as two-thirds of the spouse's government 
pension from noncovered employment.
    The GPO reduces benefits for certain two-earner couples in 
the same way that the dual-entitlement provisions reduce 
spousal benefits for others. Curtailing the GPO would boost 
benefits for those two-earner couples--as well as for the 
surviving spouses of two-earner couples--in cases in which one 
spouse receives a pension from noncovered government 
employment. Other two-earner couples, many of whom are less 
affluent than the couples who receive government pensions, 
would be unaffected.
    2. A 1992 Congressional Budget Office memorandum on the 
government pension offset reported that government retirees 
were better off financially than retirees in general and their 
average retirement income was slightly higher than that of 
private pension recipients. This memo also indicated that, 
regardless of marital status, government retirees were less 
likely to live in low-income families than other retirees, 
especially those without private pensions. Do you have more 
recent information as to how the retirement income of 
government retirees compares with other retirees?
    Answer: The information about the incomes of retired 
workers presented in the 1992 Congressional Budget Office 
memorandum was based on data from the March 1991 Current 
Population Survey (CPS) conducted by the Census Bureau. 
Comparable tabulations from the March 1999 CPS indicate that 
government retirees generally are still better off financially 
than many other retirees and have higher retirement incomes. 
The average income for families with at least one member age 62 
or older was $36,800 in 1998. In contrast, the average family 
income in 1998 of federal pension recipients age 62 or older 
was about $51,000; that of state and local government pension 
recipients was about $52,000; and that of private pensioners 
was about $46,000. The data, however, do not permit us to 
differentiate between government pensions from noncovered 
employment and those from covered employment.
    Regardless of marital status, recipients of public pensions 
are less likely than private pension recipients to live in low-
income families. For example, about 3 percent of federal 
pension recipients and 9 percent of state and local pensioners 
in 1998 were members of families whose annual income was below 
$15,000; those numbers compare with 11 percent of recipients of 
private pensions. Roughly 10 percent of widows with federal 
pensions and 20 percent of widows with state and local pensions 
had annual incomes below $15,000, compared with about 30 
percent of widows who received private pension benefits.
    3. Does the GPO calculation include any protections for 
low-income workers? How many people are pushed into poverty 
because of the GPO?
    Answer: The GPO reduces Social Security spousal benefits by 
as much as two-thirds of the government pension from noncovered 
employment. The offset rate is the same for low-income 
pensioners as for those with high incomes and does not 
differentiate between those with small pensions and those with 
substantial ones.
    CBO has no estimate of the number of people who might have 
become poor as a result of the GPO. However, as indicated in 
the preceding answer, only 3 percent of federal pension 
recipients and 9 percent of state and local pension recipients 
were in families with incomes below $15,000 in 1998. In that 
year, the poverty threshold for people age 65 or older was 
$7,818, and the threshold for elderly couples was $9,862.
    4. One of the arguments we often hear about the GPO is that 
private-sector workers don't receive comparable treatment. 
Private-sector workers may receive employer pensions, 401(k)s, 
and other retirement benefits that do not affect their Social 
Security spousal benefits. Can you tell us why government 
pensions cause a reduction in spousal benefits, but private 
employer pensions do not?
    Answer: A worker who earns a pension from private-sector 
employment also earns a Social Security benefit based on that 
employment. That benefit causes a dollar-for-dollar reduction 
in any benefit the person is entitled to as a spouse or 
surviving spouse (the dual-entitlement rule noted earlier).
    A person who earns a pension from government employment 
that is not covered by Social Security does not earn a Social 
Security benefit based on that employment. The GPO treats two-
thirds of that worker's government pension as equivalent to the 
Social Security benefit of a private-sector worker. That 
portion of the benefit offsets dollar for dollar any spousal or 
survivor's benefit. The other one-third of the worker's 
government pension is treated as equivalent to a private 
pension.
    Pensions for people working in jobs that are covered by 
Social Security are designed to supplement the worker's 
retirement income, which includes Social Security. The private 
pension plan and its benefit levels are developed around the 
premise that the worker will receive Social Security. 
Government pension plans for employees not covered by Social 
Security presume that the worker will not earn Social Security 
benefits and thus will rely more heavily on his or her pension 
for retirement income.
      

                                


Jane Ross, Social Security Administration

    1. The government pension offset is applicable only to 
pensions resulting from government employment that was not 
covered by Social Security on the last day of the worker's 
employment. Some Members have received complaints about 
government workers being able to manipulate their employment so 
that they end their government employment in a job covered by 
Social Security, thereby avoiding the GPO. How prevalent is 
this problem? Does this rule need to be changed?
    For purposes of the GPO, a worker is generally not subject 
to the offset if his or her pension from State or local 
government employment is based in part on employment covered by 
Social Security on the last day of the worker's employment. 
This provision is known as the ``last-day'' test and has always 
been part of the GPO provision. In some situations, a State or 
local government employer will allow a worker to switch jobs 
from a noncovered position to a position covered by Social 
Security specifically to meet the ``last day'' test associated 
with the GPO.
    SSA does not track the instances in which government 
workers have been able to avoid the GPO by switching into 
covered government employment on the last day of their 
government career. A check with our offices nationwide 
indicated that this practice does occur sometimes in a few 
States.
    While we expect that incidences of employees switching jobs 
so that their last day of employment is covered under Social 
Security are relatively infrequent, we recognize the potential 
for more workers to use this exception to avoid the GPO and 
share your concerns regarding the ``last-day'' test rule. 
However, alternatives to the ``last day'' test need to be 
evaluated carefully and may have unexpected results.
    For example, action could be given to consider a proposal 
to replace the ``last-day'' test with a different rule under 
which at least 85 percent of employment had to be noncovered to 
trigger the GPO. Surprisingly, this proposal would have the 
effect of decreasing the number of people affected by the GPO 
and would result in an estimated 5-year cost of $5 million.
    Another option for replacing the ``last day'' rule would be 
to treat State and local government employees like Federal 
employees who must have 60 months of covered employment under 
the same pension plan on or after January 1, 1988 in order to 
avoid the GPO. However, this option would raise issues such as 
whether a phase-in of this requirement would be appropriate or 
whether the requirement should be less than 60 months if the 
covered work still constituted a majority of the government 
service (e.g., pension based on 4 years of covered work and 3 
years noncovered).
    We would be happy to work with the Subcommittee regarding 
any proposals to address this issue.
    2. How many and what percentage of retirees are affected by 
the dual entitlement rule? How many and what percentage of 
affected retirees have their benefits eliminated because of the 
dual entitlement rule?
    About 5.8 million retirees, roughly 21% of all retirees, 
were affected by the dual entitlement rule in December 1999. 
Nearly all of these retirees were women: only about 112,000 
were men. This number does not include widow(er)s that are 
potentially dually entitled but never filed for their worker's 
benefit.
    About 7.8 million women aged 62 and older received only a 
worker benefit in 1998, compared with the 5.7 million who 
received both a worker benefit and a spousal benefit that year. 
Among those 7.8 million women who received a worker benefit is 
the subset that had their spousal benefit eliminated due to 
dual entitlement, along with never married women, divorced 
women not eligible for a spousal benefit and others. Currently 
we do not have a breakout of these various subsets of women who 
receive a worker benefit only.
    It should also be remembered that all the men married to 
these dually entitled women, and potentially dually entitled 
women, are also potentially dually entitled. In addition, there 
also would be widowers who are potentially dually entitled. 
These men are not separately estimated because their own worker 
benefit completely offsets the potential spouse/widower benefit 
under current law.
    3. How much would it cost to eliminate the dual entitlement 
rule? How much would it cost to provide an exemption from the 
dual entitlement rule for retirees whose combined Social 
Security retirement and spouse benefit is less than $1,200?
    SSA's Office of the Actuary estimates the cost of 
eliminating the dual entitlement provision as follows:
     Total elimination of dual entitlement would cost 
$439 billion over the first five years. The long range (75-
year) cost would be 3.2 percent of taxable payroll (i.e., the 
current long range OASDI deficit would be increased from 1.89 
to 5.09 percent of taxable payroll.)
     Eliminating the dual entitlement provision for 
entitled workers whose combined worker and auxiliary benefit is 
less than $1,200 (indexed for COLAs) would cost $290 billion 
over the first five years. The long range (75-year) cost would 
be 1.3 percent of taxable payroll (i.e., the current long range 
OASDI deficit would be increased from 1.89 to 3.19 percent of 
taxable payroll.)
    We also developed cost information on a variation of this 
latter change under which the aged poverty level would be 
substituted for the $1,200 threshold:
     The estimated cost of eliminating the dual 
entitlement provision for entitled workers whose combined 
worker and auxiliary benefit is less than the poverty level 
(for an individual aged 65 or older) is $68 billion over the 
first five years. The long range (75-year) cost of this option 
would be 0.2 percent of taxable payroll (i.e., the current long 
range OASDI deficit would be increased from 1.89 to 2.09 
percent of taxable payroll.)
    These proposals would affect not only workers who are 
dually entitled under current law (that is, those whose 
auxiliary benefit exceeds their worker's benefit), but also 
workers who are ``potentially'' dually entitled--whose worker's 
benefit exceeds their auxiliary benefit.
    In addition, since the government pension offset (GPO) 
provision is intended to replicate the dual entitlement 
provision, each of the proposals above could also be modified 
so that the GPO provision is treated in the same manner as the 
dual entitlement provision. If the approaches above were to 
apply to the GPO provision (and not the dual entitlement 
provision), the costs would be as follows:
     Eliminate GPO: Cost over 2001-2005 of $9.0 billion 
and a long-range cost of 0.03 percent of taxable payroll.
     Full GPO offset only on combined pension and 
Social Security benefit amounts of $1,200: Cost over 2001-2005 
of $2.3 billion and a negligible long-range cost (less than 
0.005 percent of taxable payroll).
     Full GPO offset only on combined pension and 
Social Security benefit amounts above the poverty level: Cost 
over 2001-2005 of $500 million and a negligible long-range cost 
(less than 0.005 percent of taxable payroll).
    However, from an equity standpoint, if changes such as 
these were made to the GPO provision, similar changes should be 
made to the dual entitlement provision because each provision 
is intended to achieve the same goal--to prevent dependent 
benefits from be paid to spouses who are not primarily 
dependent on the worker.

                                


Attachments:
Memorandums from the Office of the Chief Actuary

                                            Social Security
                                              Refer to: TCC
                                                      July 26, 2000
To: Harry C. Ballantyne, Chief Actuary
From: Stephen C. Goss, Deputy Chief Actuary, and Alice H. Wade, Actuary

Subject: Estimated Long-Range OASDI Financial Effects of Modifying or 
Repealing the Dual Entitlement Provision--INFORMATION

    Under present law, an individual who is eligible for both a worker 
benefit and an auxiliary benefit receives the worker benefit and the 
excess, if any, of the auxiliary benefit over the worker benefit.
    If a proposal were enacted, effective January 1, 2001, that allowed 
an individual to receive the sum of their worker benefit and the 
highest auxiliary benefit to which they are entitled, then the 
estimated OASDI long-range actuarial deficit would increase by about 
3.2 percent of taxable payroll. If the total amount an individual can 
receive under this proposal is limited to the larger of (a) the total 
benefit under present law and (b) $1,200 (indexed in future years by 
COLAs), then the estimated OASDI long-range actuarial deficit would 
increase by about 1.3 percent of taxable payroll. However, if the limit 
is reduced to be the larger of (a) the total benefit under present law 
and (b) the aged poverty level ($665 in 1999), then the estimated OASDI 
long-range actuarial deficit would increase by about 0.2 percent of 
taxable payroll.
    All estimates are based on the intermediate assumptions of the 2000 
Trustees Report, with adjustment for the recent enactment of the 
elimination of the retirement earnings test for workers who have 
reached their normal retirement age.
                                              Alice H. Wade
                                            Stephen C. Goss

                                

                                            Social Security
                                              Refer To: TCB
                                                      July 26, 2000
From: Bert Kestenbaum, and Chris Chaplain, Office of the Chief Actuary
Subject: Estimated Additional Benefit Payments Under a Proposal to 
Change the Dual Entitlement Provision--INFORMATION
    Under the current-law dual entitlement provision, an individual 
eligible for both a worker's benefit and a secondary benefit receives 
the primary benefit and the excess, if any, of the secondary benefit 
over the primary benefit--not the sum of the various benefits. The 
subject proposal would allow receipt of the sum of the two benefits. 
The proposal has three alternatives. Under one alternative, the full 
secondary benefit would be payable in addition to the primary benefit. 
The other two alternatives would allow additional benefits to be paid 
only to the extent that the total benefit does not exceed either $1,200 
(indexed by COLAs), or the Census poverty threshold ($665 per month in 
1999) for an individual aged 65 or older, respectively.
    The proposal affects not only workers dually entitled under current 
law, that is, those whose secondary benefits exceed their worker's 
benefits, but also workers ``potentially'' dually entitled--whose 
worker benefits exceed their secondary benefits. The proposal does not 
change how dual entitlement applies in cases of multiple secondary 
entitlement (e.g., an individual entitled as both a widow(er) and a 
spouse).
    The attached table presents estimated additional benefit payments 
that would result under the three alternatives of the proposal. We 
assume that the proposal will be effective for benefits paid for months 
after December 2000. The estimates use the intermediate assumptions of 
the 2000 OASDI Trustees Report.
                                    Bert Kestenbaum, A.S.A.
                                                            Actuary

                                     Chris Chaplain, A.S.A.
                                                            Actuary

Attachment


 Estimated additional benefit payments from a proposal to change the dual entitlement provision for individuals
                              eligible for a worker benefit and a secondary benefit
                                                  [In billions]
----------------------------------------------------------------------------------------------------------------
                                                                         Calendar Year                   Total
                  Proposal Alternatives                  -------------------------------------------------------
                                                            2001     2002     2003     2004     2005   2001-2005
----------------------------------------------------------------------------------------------------------------
Make the secondary benefit fully payable:
    Beneficiaries currently dually entitled.............     $31      $33      $34      $36      $38      $173
    Beneficiaries potentially dually entitled \1\.......      48       50       53       56       59       266
    Total...............................................      79       83       87       92       98       439

Make the secondary benefit payable to the extent that
 the total benefit does not exceed $1,200 (indexed by
 COLAs):
    Beneficiaries currently dually entitled.............      20       21       22       23       25       111
    Beneficiaries potentially dually entitled \1\.......      32       34       36       38       40       179
    Total...............................................      52       55       58       61       65       290

Make the secondary benefit payable to the extent that
 the total benefit does not exceed the poverty level:
 \2\
    Beneficiaries currently dually entitled.............       6        7        7        8        8        37
    Beneficiaries potentially dually entitled \1\.......       6        6        6        7        7        32
    Total...............................................      12       13       14       14       15       68
----------------------------------------------------------------------------------------------------------------
\1\ Beneficiaries who are eligible for a secondary benefit smaller than their worker's benefit.
\2\ The Census poverty threshold for an individual aged 65 or older (estimated to be $702 per month in 2001).

Notes:

1. All alternatives are effective for months after December 2000.
2. Estimates incorporate the intermediate assumptions of the 2000 OASDI Trustees Report.
3. Totals may not equal the sums of the individual components because of rounding.


    4. Your written testimony indicates that most low-income 
workers are better off under the GPO than they would be if they 
were affected by the dual entitlement rule in Social Security. 
Can you explain why? Is there any data illustrating this point?

    A 1990 Congressional Research Service report examined what 
amount of a Civil Service Retirement System (CSRS) benefit is 
equivalent to a Social Security benefit as a way of evaluating 
how accurate the GPO is in offsetting those pensions. The 
report found that the two-thirds offset is not accurate for all 
workers; more than two-thirds of the CSRS pension tends to be 
equivalent to Social Security for lower-paid workers with 
shorter-term careers. The report indicates that making the GPO 
more accurate would require counting more than two-thirds of 
the CSRS pension for these workers, as shown in Table 1. In 
many cases, the current law two-thirds offset is too large for 
high-wage workers.


  Table 1. An accurate offset of spouses' CSRS pension (portion that is
 equivalent to Social Security) is higher than two-thirds for lower-paid
                      workers with shorter careers
------------------------------------------------------------------------
                                         GS-3 step    GS-10      GS-16
              CSRS career                    7        step 3     step 6
------------------------------------------------------------------------
10 years...............................      127%        92%        45%
20.....................................       79%        61%        29%
30.....................................       64%        51%        22%
40.....................................       52%        42%        17%
------------------------------------------------------------------------
Source: Table 1, CRS Report, 1990

    The Social Security benefit formula is strongly weighted in 
favor of career low-wage workers while most pensions are 
weighted in favor of workers with many years of service and 
this difference yields a higher replacement rate for these 
workers than many pensions do. As a result, it is likely that 
the equivalent Social Security benefit for a given earnings 
history of a low earner is likely to be greater than the 
government pension for that same earnings history (as shown in 
Table 1). Since the dual entitlement provision is a dollar-for-
dollar reduction while the GPO is two-thirds, it would seem 
that the combination of the weighted benefit formula with the 
dollar-for-dollar reduction makes the dual entitlement rule 
harsher than the GPO for comparable low-wage workers.

5. During the hearing, Rep. J.D. Hayworth (R-AZ) requested a 
copy of the educational material SSA publishes to inform 
workers about the GPO. In addition, Rep. Rob Portman (R-OH) 
asked for recommendations regarding how these notifications and 
educational material can be improved. Please provide this 
information as separate documents for inclusion in the record.

    Educational Material that SSA Publishes to Inform Workers 
about the GPO (also attached as a separate document)
    SSA has undertaken many efforts to alert workers to the 
possible effect that a pension based on work not covered by 
Social Security may have on a person's Social Security benefit. 
We will review that language in the Social Security Statement 
when we make the end-of-year updates later this year. At that 
time we also will consider any suggestions we may have received 
from the public throughout the year.
    The Social Security Statement advises workers that the 
amount of their Social Security benefit may be affected by a 
pension from work not covered by Social Security. However, 
because we are not able to identify a worker's spouse and do 
not have access to pension data for the spouse, it is not 
possible for SSA to provide an accurate future benefit estimate 
reflecting the GPO.
    Changes in the Statement's language are generally limited 
to making changes and additions as part of the regularly 
scheduled end-of-year updates. This limit reduces cost overruns 
and drains on resources, and limits the potential for confusion 
by providing for a consistent Statement throughout the year.
    In addition to the Social Security Statement, SSA provides 
factsheets and pamphlets advising the public about the possible 
affect that a pension from work not covered by Social Security 
may have on a person's Social Security benefit. As requested, 
we are providing the Subcommittee with copies of these 
publications. All of these publications are also available to 
the public through SSA's internet website.

Attachments:

Your Social Security Statement
Government Pension Offset
A Pension From Work Not Covered By Social Security
Social Security Retirement Benefits
Social Security Survivor Benefits
Social Security Disability Benefits

6. During your testimony, you indicated that instead of 
distinguishing between workers affected by the GPO and those 
affected by the dual entitlement rule, it may be more useful to 
identify groups of retirees who tend to experience high poverty 
rates (such as widows), and modify the application of the GPO 
and dual entitlement rule for these targeted groups. You 
indicated that such modifications would address the GPO/dual 
entitlement rule and would also help alleviate poverty among 
vulnerable groups. Rep. Portman requested that you provide more 
details regarding this approach and recommendations you would 
have to modify the GPO and dual entitlement rule for target 
groups, such as women and widows. Please provide this 
information as a separate document for inclusion in the record.

    Recommendations for addressing high poverty rates of those 
affected by GPO and the dual entitlement rule. (Also attached 
as a separate document.)
    As was mentioned in the hearing, we would be happy to work 
with Members on specific proposals or ideas they might have for 
improving benefits for elderly widows and low earners by 
changing the Government Pension Offset or the dual entitlement 
rule.
    However, as was stated during the hearing, we are worried 
about restricting our concern to the subgroup that is in the 
government pension offset because it does not seem like a very 
target-efficient way to work on poverty reduction. Equally poor 
individuals can be found in the dually-entitled category as 
well as those that are not affected by either. Other options 
for addressing the poverty issue or low-income issue do not 
treat one of those three groups differently than the other.
    While the Administration has not endorsed any specific 
proposal designed to improve the economic condition of elderly 
women, we are examining a variety of proposals that have been 
developed by numerous groups. These recommendations focus on 
increasing benefits for widow(er)s and low earners, the two 
groups that legislation to change the GPO is targeted at 
helping.
    1. Make the widow(er)'s benefit a larger percentage of the 
couple's benefit.
     Increase widow(er)'s benefits to 67 percent of the 
couple's benefit, limited either to the benefit paid to steady 
maximum earners or the average retired worker benefit. This 
could be made effective for all widow(er)s immediately or 
gradually phased in.
     Increase widow(er)'s benefits to 75 percent of the 
couple's benefit, limited either to the benefit paid to steady 
maximum earners or the average retired worker benefit. This 
could be made effective for all widow(er)s immediately or 
gradually phased in.
     Abolish the widow(er)'s limit ceiling and permit 
widow(er)s, whose spouse retired before the normal retirement 
age, to receive up to 100 percent of their spouse's PIA, 
depending on when the widow(er) filed for benefits.
    2. Increase the special minimum benefit for low earners. 
The special minimum benefit provides a guaranteed benefit level 
for people who worked for at least 11 years in covered 
employment. As of December 1999, the minimum benefit pays a 
worker with 30 years a monthly benefit of $580.60, while the 
all-ages monthly poverty threshold was $722.20 that year.
     Index the special minimum benefit to wage growth 
rather than inflation.
     Increase the benefit payment to workers with many 
years of low earnings by changing the existing special minimum 
benefit so that 30 years of covered earnings result in a 
benefit at 100 percent of the poverty threshold; 40+ years 
would result in a benefit at 130 percent of the poverty 
threshold, scaled between 30 and 40 and scaled down to 10 
years.
    1. Making changes to the SSI program. Under current law, 
the dollar amount of monthly Social Security benefits excluded 
in computing SSI benefits, the general income exclusion, has 
remained constant at $20 since 1974. If it had been indexed for 
inflation in January 2000 it would be $80.
     Raise the general income exclusion in any 
increment above the current $20. For example, it could increase 
from $20 to $80 and possibly could be annually adjusted for 
inflation.
     Raise the SSI payment standard to the poverty 
level. The annual SSI benefit was $6,000 for an individual and 
$9,012 for a couple in 1998. The Census poverty threshold in 
1998 was $7,818 for individuals and $9,862 for a couple with an 
aged individual.

7. One of the major complaints about the GPO is that the 
calculation used is arbitrary. However, SSA does not have the 
information it would need to perform an individual calculation 
for each government retiree to determine the exact offset on a 
case-by-case basis. If it were possible to do an individual 
calculation, would all government retirees benefit from the 
individual calculation or would some retirees be better off 
under the \2/3\ offset that currently exists? Is it possible to 
estimate what percentage of retirees are better off under the 
\2/3\ offset compared to an individual calculation?

    Some retired government workers may fare better than others 
under the two-thirds offset if that offset underestimates how 
much of their noncovered pension is equivalent to a Social 
Security benefit. A 1990 CRS study of prototypical CSRS 
retirees found that the two-thirds offset is too high for 
higher-paid workers that are eligible for a spousal benefit and 
too low for lower-paid workers with shorter careers that are 
eligible for a spousal benefit. It is not possible to tell for 
a real individual worker which method is better without having 
that person's complete earnings history, including noncovered 
employment.
    It is not possible to determine what percentage of retirees 
are better off under the two-thirds offset compared to an 
individual calculation without data on the entire earnings 
histories of all workers, or at least the workers in a 
nationally representative sample, who have worked in noncovered 
employment.

8. During your testimony, you referred to two studies conducted 
by the CRS and SSA which focused on state/local government 
workers and federal workers, respectively. These studies 
contained data regarding total income for government workers 
based on Census Bureau data. Could you please provide us with a 
copy of the SSA study?

   Effects of Liberalizing the Government Pension Offset in H.R. 1217

(Also attached as a separate document)

    The work that SSA has done is the following:

H.R. 1217 would liberalize the Government Pension Offset

    The bill would reduce the offset to the lesser of:
     the unreduced combination of monthly Social 
Security benefits and noncovered pension benefits that exceeds 
a $1,200 threshold (indexed to federal pension COLAs), or;
     \2/3\ of any such monthly noncovered pension 
benefit.
    Most of those who would benefit from H.R. 1217 would not be 
poor
     Half of those affected by the GPO would receive 
benefit increases under H.R. 1217 and about 30 percent would no 
longer be offset, according to analysis of recent MBR records.
     Over 90 percent of those who would benefit from 
H.R. 1217 were not poor and over 80 percent had family incomes 
above 150 percent of poverty, according to the March 1994 CPS 
data \1\ in Table 1.
---------------------------------------------------------------------------
    \1\ The CPS sample size was small, 88 cases for the GPO group and 
only 44 for the HR 1217 group, but its results for gender and marital 
status closely parallel those of the MBR analysis which is based on 
almost 266,000 cases.
---------------------------------------------------------------------------
     Those who would benefit from H.R. 1217 had a lower 
poverty rate than the general population, but they had a higher 
poverty rate than those affected by the GPO.


Table 1. The poverty rate is lower for those who would benefit from H.R.
              1217 than for the general population in 1993
------------------------------------------------------------------------
                                                               Welfare
                                                 Family     ratio \1\ is
                                              income below  below the US
                                 In poverty      150% of       median
                                                 poverty       welfare
                                                                ratio
------------------------------------------------------------------------
General population............          15%           25%           50%
Affected by GPO...............           5%           10%           35%
Affected by H.R. 1217.........           9%           17%           50%
------------------------------------------------------------------------
Source: Matched March 1994 CPS file


     Those who would benefit from H.R. 1217 would 
include a significantly larger share of women and slightly 
greater proportions of widowed, and divorced/separated 
beneficiaries than the larger group affected by the GPO.
     There is no difference in racial makeup between 
the two groups, as shown in Table 2.


Table 2. Those who would benefit from H.R. 1217 differed from those affected by GPO by gender and marital status
----------------------------------------------------------------------------------------------------------------
                                                                                                       Divorced/
                                       Female     White      Black      Other     Married    Widowed   Separated
----------------------------------------------------------------------------------------------------------------
Affected by GPO....................       58%        93%         5%         2%        64%        31%         5%
Affected by H.R. 1217..............       80%        92%         6%         2%        57%        35%         9%
----------------------------------------------------------------------------------------------------------------
Source: Matched March 1994 CPS file


                                            Social Security
                                             Refer to : TCC
                                                      July 26, 2000
To: Harry C. Ballantyne, Chief Actuary
From: Stephen C. Goss, Deputy Chief Actuary and Alice H. Wade, Actuary

Subject: Estimated Long-Range OASDI Financial Effects of Modifying or 
Repealing the Dual Entitlement Provision -INFORMATION

    Under present law, an individual who is eligible for both a worker 
benefit and an auxiliary benefit receives the worker benefit and the 
excess, if any, of the auxiliary benefit over the worker benefit.
    If a proposal were enacted, effective January 1, 2001, that allowed 
an individual to receive the sum of their worker benefit and the 
highest auxiliary benefit to which they are entitled, then the 
estimated OASDI long-range actuarial deficit would increase by about 
3.2 percent of taxable payroll. If the total amount an individual can 
receive under this proposal is limited to the larger of (a) the total 
benefit under present law and (b) $1,200 (indexed in future years by 
COLAs), then the estimated OASDI long-range actuarial deficit would 
increase by about 1.3 percent of taxable payroll. However, if the limit 
is reduced to be the larger of (a) the total benefit under present law 
and (b) the aged poverty level ($665 in 1999), then the estimated OASDI 
long-range actuarial deficit would increase by about 0.2 percent of 
taxable payroll.
    All estimates are based on the intermediate assumptions of the 2000 
Trustees Report, with adjustment for the recent enactment of the 
elimination of the retirement earnings test for workers who have 
reached their normal retirement age.
                                              Alice H. Wade
                                            Stephen C. Goss

                                


    Recommendations for addressing high poverty rates of those 
affected by GPO and the dual entitlement rule.
    As was mentioned in the hearing, we would be happy to work 
with Members on specific proposals or ideas they might have for 
improving benefits for elderly widows and low earners by 
changing the Government Pension Offset or the dual entitlement 
rule.
    However, as was stated during the hearing, we are worried 
about restricting our concern to the subgroup that is in the 
government pension offset because it does not seem like a very 
target-efficient way to work on poverty reduction. Equally poor 
individuals can be found in the dually-entitled category as 
well as those that are not affected by either. Other options 
for addressing the poverty issue or low-income issue do not 
treat one of those three groups differently than the other.
    While the Administration has not endorsed any specific 
proposal designed to improve the economic condition of elderly 
women, we are examining a variety of proposals that have been 
developed by numerous groups. These recommendations focus on 
increasing benefits for widow(er)s and low earners, the two 
groups that legislation to change the GPO is targeted at 
helping.

    1. Make the widow(er)'s benefit a larger percentage of the 
couple's benefit.

     Increase widow(er)'s benefits to 67 percent of the 
couple's benefit, limited either to the benefit paid to steady 
maximum earners or the average retired worker benefit. This 
could be made effective for all widow(er)s immediately or 
gradually phased in.
     Increase widow(er)'s benefits to 75 percent of the 
couple's benefit, limited either to the benefit paid to steady 
maximum earners or the average retired worker benefit. This 
could be made effective for all widow(er)s immediately or 
gradually phased in.
     Abolish the widow(er)'s limit ceiling and permit 
widow(er)s, whose spouse retired before the normal retirement 
age, to receive up to 100 percent of their spouse's PIA, 
depending on when the widow(er) filed for benefits.

    2. Increase the special minimum benefit for low earners. 
The special minimum benefit provides a guaranteed benefit level 
for people who worked for at least 11 years in covered 
employment. As of December 1999, the minimum benefit pays a 
worker with 30 years a monthly benefit of $580.60, while the 
all-ages monthly poverty threshold was $722.20 that year.

     Index the special minimum benefit to wage growth 
rather than inflation.
     Increase the benefit payment to workers with many 
years of low earnings by changing the existing special minimum 
benefit so that 30 years of covered earnings result in a 
benefit at 100 percent of the poverty threshold; 40+ years 
would result in a benefit at 130 percent of the poverty 
threshold, scaled between 30 and 40 and scaled down to 10 
years.

    3. Making changes to the SSI program. Under current law, 
the dollar amount of monthly Social Security benefits excluded 
in computing SSI benefits, the general income exclusion, has 
remained constant at $20 since 1974. If it had been indexed for 
inflation in January 2000 it would be $80.

     Raise the general income exclusion in any 
increment above the current $20. For example, it could increase 
from $20 to $80 and possibly could be annually adjusted for 
inflation.
     Raise the SSI payment standard to the poverty 
level. The annual SSI benefit was $6,000 for an individual and 
$9,012 for a couple in 1998. The Census poverty threshold in 
1998 was $7,818 for individuals and $9,862 for a couple with an 
aged individual.

   Effects of Liberalizing the Government Pension Offset in H.R. 1217

    The work that SSA has done is the following:
    H.R. 1217 would liberalize the Government Pension Offset
    The bill would reduce the offset to the lesser of:
     the unreduced combination of monthly Social 
Security benefits and noncovered pension benefits that exceeds 
a $1,200 threshold (indexed to federal pension COLAs), or;
     \2/3\ of any such monthly noncovered pension 
benefit.

    Most of those who would benefit from H.R. 1217 would not be 
poor
     Half of those affected by the GPO would receive 
benefit increases under H.R. 1217 and about 30 percent would no 
longer be offset, according to analysis of recent MBR records.
     Over 90 percent of those who would benefit from 
H.R. 1217 were not poor and over 80 percent had family incomes 
above 150 percent of poverty, according to the March 1994 CPS 
data \2\ in Table 1.
---------------------------------------------------------------------------
    \2\ The CPS sample size was small, 88 cases for the GPO group and 
only 44 for the HR 1217 group, but its results for gender and martial 
status closely parallel those of the MBR analysis which is based on 
almost 266,000 cases.
---------------------------------------------------------------------------
     Those who would benefit from H.R. 1217 had a lower 
poverty rate than the general population, but they had a higher 
poverty rate than those affected by the GPO.


Table 1. The poverty rate is lower for those who would benefit from H.R.
              1217 than for the general population in 1993
------------------------------------------------------------------------
                                                               Welfare
                                                 Family     ratio \2\ is
                                              income below  below the US
                                 In poverty      150% of       median
                                                 poverty       welfare
                                                                ratio
------------------------------------------------------------------------
General population............          15%           25%           50%
Affected by GPO...............           5%           10%           35%
Affected by H.R. 1217.........           9%           17%           50%
------------------------------------------------------------------------
Source: Matched March 1994 CPS file

     Those who would benefit from H.R. 1217 would 
include a significantly larger share of women and slightly 
greater proportions of widowed, and divorced/separated 
beneficiaries than the larger group affected by the GPO.
     There is no difference in racial makeup between 
the two groups, as shown in Table 2.

Table 2. Those who would benefit from H.R. 1217 differed from those affected by GPO by gender and marital status
----------------------------------------------------------------------------------------------------------------
                                                                                                       Divorced/
                                       Female     White      Black      Other     Married    Widowed   Separated
----------------------------------------------------------------------------------------------------------------
Affected by GPO....................       58%        93%         5%         2%        64%        31%         5%
Affected by H.R. 1217..............       80%        92%         6%         2%        57%        35%         9%
----------------------------------------------------------------------------------------------------------------
Source: Matched March 1994 CPS file

      

                                


    Chairman Shaw [presiding]. The next panel, and the final 
panel, Vincent Sombrotto, President of the National Association 
of Letter Carriers; John Keane, who is the Administrator from 
the Jacksonville Police and Fire Pension Fund, from 
Jacksonville, Florida; David John, who is the Senior Policy 
Analyst for Social Security, the Heritage Foundation; Frank 
Atwater, National President and Chief Executive Officer of the 
National Association of Retired Federal Employees, on behalf of 
the Coalition to Assure Retirement Equity; and Ruth Pickard, 
who is a member of the National Association of Retired Federal 
Employees.
    Thank you all for being here. We have got your full 
testimony which will be made a part of the record. You may 
proceed as you see fit.
    Mr. Sombrotto.

    STATEMENT OF VINCENT R. SOMBROTTO, PRESIDENT, NATIONAL 
 ASSOCIATION OF LETTER CARRIERS, AMERICAN FEDERATION OF LABOR 
            AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

    Mr. Sombrotto. Thank you, Mr. Chairman, for the opportunity 
to appear before you today. If I may, I would like to submit my 
full statement for the re cord.
    Chairman Shaw. Without objection, all statements will be 
made a part of the record.
    Mr. Sombrotto. Thank you. My name is Vincent Sombrotto and 
I am president of the National Association of Letter Carriers. 
I represent a union of 320,000 members of which 90,000 are 
retirees. I am also here in my capacity as the chairman of the 
Fund for Assuring an Independent Retirement (FAIR). FAIR is a 
coalition of more than 20 organizations representing more than 
9 million Federal and postal employees both active and retired. 
Needless to say, the Government pension offset is a major issue 
to the people that I represent.
    I would like to thank you, Chairman Shaw, for recognizing 
the challenge that the Government pension offset presents to 
members of the Federal community. There are no issues that 
generate more passion among my members than those associated 
with the reduced Social Security benefits, either through the 
GPO or the windfall elimination provision. We thank Congressman 
Barney Frank from Massachusetts for his bill addressing the 
windfall elimination provision. I also want to thank 
Congressman Jefferson for his extraordinary efforts on the 
Government pension offset.
    The FAIR coalition has endorsed Congressman Jefferson's 
bill. It is the latest in the long line of bills that have been 
both bipartisan and bicameral. However, we also recognize, Mr. 
Chairman, that you have some concern about this bill, and we 
look forward to working with you to craft a solution to a 
serious problem of the Government pension offset.
    I often speak to retired members of my union. They are 
people who spent decades on the street delivering mail who 
should be enjoying the fruits of their labor in their 
retirement years. Instead, they must go to work each day 
because they receive little or no Social Security spousal 
benefit due to Government pension offset. These stories are 
only going to become more common as more and more retirees will 
be from dual income families.
    At the core of the issue is the question of what portion of 
the civil service retirement system annuity is comparable to 
Social Security benefits for the purpose of applying the dual 
entitlement rule. In some ways a CSRS benefit is more like a 
private sector pension than a Social Security benefit. Yet, the 
public sector annuity is also designed to incorporate the 
equivalent of Social Security benefits. These questions become 
even more difficult because of the differences in the way 
Social Security and CSRS benefits are calculated. The key is to 
determine which comparison to apply for purposes of providing 
Federal retirees with the benefits that they have earned, and 
deserve.
    Even if we were able to accurately make this calculation, 
we must take a second look at the formula used to calculate the 
Government pension offset. The current two-third offset is an 
arbitrary figure arising out of the 1983 compromise. The idea 
is that one-third of the CSRS annuity that is not subject to 
the offset calculation is analogous to a pension in the private 
sector. However, I would contend that one-third greatly under-
estimates the value of such a pension. For example, the United 
States Postal Service is the single largest public civilian 
employer with more than 800,000, and I might add it is now 
900,000, employees. If we were a private company, it would rank 
in the top ten of the Fortune 500. It would be inaccurate to 
equate the size of the pensions offered by these Fortune 500 
companies with the one-third of a civil service annuity.
    Another concern that arises out of the debate over the 
Government pension offset is that it highlights some of the 
other benefit reductions that only public sector retirees are 
forced to live with. One example is a situation where a person 
is subject to both the Government pension offset and the 
windfall elimination provision, which reduces an annuitant's 
own Social Security benefits. Another area is public pensions 
that are treated differently from Social Security benefits for 
tax purposes. A person whose Social Security benefits are 
reduced under the dual entitlement rule do not have to suffer 
the adverse tax consequences as well, only CSRS annuitants do.
    I have no doubt that we can come up with a solution to this 
problem. We would like to eliminate the GPO altogether. 
However, we are willing to talk about other avenues to diminish 
its impact on our retirees. I heard one of the other witnesses 
say this was a blunt instrument. I associate myself with that 
remark. Our retirees keep getting hit with that blunt 
instrument. For example, we may want to consider changing the 
formula either on a percentage basis or by looking at the 
actual dollar amounts. Also, attempts to mitigate the impact of 
those affected by both the windfall elimination provision and 
the Government pension offset may help alleviate some of the 
financial burden placed on our retirees.
    There are no easy answers to this situation. But the 
National Association of Letter Carriers and the FAIR Coalition 
look forward to working with you. Your involvement in this 
process is crucial if we are to make changes to the current 
system.
    [The prepared statement follows:]

                                


Statement of Vincent R. Sombrotto, President, National Association of 
Letter Carriers, American Federation of Labor and Congress of 
Industrial Organizations

    Thank you Mr. Chairman for the opportunity to appear before 
you today. My name is Vincent Sombrotto, and I am president of 
the National Association of Letter Carriers. I represent a 
union of 320,000 members, of which 90,000 are retirees. I am 
also here in my capacity as the chairman of the Fund for 
Assuring an Independent Retirement, or ``FAIR.'' FAIR is a 
coalition of more than 20 organizations representing more than 
9 million federal and postal employees and retirees. Needless 
to say, the ``government pension offset'' (GPO) is a major 
issue to the people I represent.
    I would like to thank you Chairman Shaw for recognizing the 
challenge that the government pension offset presents to 
members of the federal community. I travel all over this 
country speaking with letter carriers, and there are no issues 
that engender more passion than those associated with reduced 
Social Security benefits, either through the GPO or the 
windfall elimination provision. Congressman Frank from 
Massachusetts has our gratitude for his bill addressing the 
windfall elimination provision. I also want to thank 
Congressman Jefferson for his extraordinary efforts on the 
government pension offset. In obtaining more than 240 
cosponsors for HR 1217, he has managed to educate many Members 
of Congress and the public at large about the GPO and how it 
touches the lives of so many retirees. The FAIR coalition has 
endorsed Congressman Jefferson's bill. The Social Security 
Administration has calculated that the bill's cost is 
negligible at less then .005% of payroll. However, we also 
recognize, Mr. Chairman, that you have some concerns about this 
bill, and look forward to working with you to craft a solution 
to the serious problem of the government pension offset.
    Over the years there have been a number of efforts to 
reduce or eliminate the effects of the GPO. Its original 
enactment in 1977 called for 100% of a government pension to be 
subtracted from Social Security spousal benefits. In 1983, the 
House passed a measure calling for the offset to be \1/3\ of 
the government pension, while the Senate made no change to the 
1977 100% offset. The legislative department at the National 
Association of Letter Carriers was involved in the negotiations 
leading to the compromise creating the current 2/3 offset. 
Since then there have been numerous attempts to make changes or 
even eliminate the government pension offset. Congressman 
Jefferson's effort is the latest in a long line of bills that 
have seen varying levels of success. These efforts have been 
bipartisan and bicameral with Members from both sides of the 
aisle not only cosponsoring legislation, but actively pushing 
for its passage. At one point, a modification of the government 
pension offset made it to President Bush, but it was part of a 
larger package that was vetoed by the president.
    As of June 1999, there were about 284,000 government 
annuitants subject to the government pension offset according 
to the Congressional Research Service. This number does not 
reflect workers who, while eligible for spousal benefits, may 
have decided not to file for them because of the offset. There 
are also a significant number of people eligible for retirement 
who have been forced back into the workforce to make up for the 
effects of the government pension offset. I often speak to 
retired member of my union, people who spent decades on the 
street delivering mail, and who should be enjoying the fruits 
of their labors in their retirement years. Instead, they must 
go to work each day because they receive little or no Social 
Security spousal benefit due to the government pension offset. 
These stories are only going become more common as more and 
more retirees will be from dual-income households. This will 
add to the need to do something about this situation and will 
call into further question the current, simple and arbitrary 
formula being used to calculate the GPO.
    We have several concerns over the government pension 
offset. The first is that the dual entitlement rule under 
Social Security is not wholly analogous to situations where a 
person is entitled to both a government pension and a Social 
Security spousal benefit. The second concern is that the GPO, 
which attempts to apply the dual entitlement rule to the 
government pension context, is arbitrary. Finally, the GPO has 
created problems that were never envisioned or intended with 
its original enactment. I would like to touch upon each of 
these areas in greater detail.
    At the core of the issue is the question of what portion of 
an annuity through the Civil Service Retirement System (CSRS) 
is comparable to Social Security benefits for purposes of 
applying the ``dual entitlement'' rule. In some ways a CSRS 
benefit is more like a private sector pension than a Social 
Security benefit. Yet, the public sector annuity is also 
designed to incorporate the equivalent of Social Security 
benefits. These questions become even more difficult because of 
the differences in the way Social Security and CSRS benefits 
are calculated. The key is to determine which comparison to 
apply for purposes of providing federal retirees with the 
benefits they have earned, and they deserve.
    Even if we were able to accurately make this calculation, 
we must take a second look at the formula used to calculate the 
government pension offset. Currently, Social Security spousal 
benefits are reduced by \2/3\ of the annuity received under 
CSRS. As I mentioned earlier, this percentage represented a 
compromise between a House bill which called for a \1/3\ 
reduction and a Senate bill which retained the original 100% 
offset. The result is an arbitrary figure. The idea is that the 
\1/3\ of a CSRS annuity that is not subject to the offset 
calculation is analogous to a pension in the private sector. 
However, I would contend that \1/3\ greatly underestimates the 
value of such a pension. Using the example I am most familiar 
with, the United States Postal Service is the largest public 
sector civilian employer with more than 800,000 employees. If 
it were a private company, it would rank in the top 10 of the 
Fortune 500. It would be inaccurate to equate the size of the 
pensions offered by these Fortune 500 companies with \1/3\ of a 
Civil Service annuity. In addition, the current formula also 
results in a reduction that often is no different than if there 
were a 100% offset because even the \2/3\ offset totally wipes 
out their spousal benefit. At the very least, this calls for a 
modification of the formula with the application of a 
percentage more in keeping with comparable size employers and 
pension plans and that doesn't totally wipe out the spousal 
benefit.
    Another concern that arises out of the debate over the 
government pension offset is that it highlights some of the 
other benefit reductions that only public sector retirees are 
forced to live with. One example is a situation where a person 
is subject to both the government pension offset and the 
windfall elimination provision, which reduces an annuitant's 
own Social Security benefits. Many letter carriers need a 
second job to make ends meet. These people lose out not only on 
spousal benefits, but also on the Social Security benefits they 
earned either through a career prior to or while working in the 
public sector. This serves as something of a ``double hit'' on 
the annuitant's benefits.
    Public pensions are also treated differently from Social 
Security benefits for tax purposes. This is yet another area 
where the ``dual entitlement'' rule is different for Social 
Security than it is for a CSRS annuity. A ``double hit'' occurs 
here because the annuitant, in addition to suffering the 
effects of the government pension offset, also must pay taxes 
on their annuity. A person whose Social Security benefits are 
reduced under the ``dual entitlement'' rule does not have to 
suffer adverse tax consequences as well--only the CSRS 
annuitant must.
    I have no doubt that we can come up with a solution to this 
problem. We would like to eliminate the GPO altogether. 
However, we are willing to talk about other avenues to diminish 
its impact on our retirees. For example, we may want to 
consider changing the formula either on a percentage basis or 
by looking at actual dollar amounts. Also, attempts to mitigate 
the impact on those affected by both the windfall elimination 
provision and the government pension offset may help alleviate 
some of the financial burden placed on our retirees. There are 
no easy answers to this situation, but the National Association 
of Letter Carriers and the FAIR Coalition look forward to 
working with you. Your involvement in this process is crucial 
if we are to make changes to the current system.
    Thank you.
      

                                


    Chairman Shaw. Thank you.
    Mr. Keane.

STATEMENT OF JOHN KEANE, ADMINISTRATOR, JACKSONVILLE POLICE AND 
            FIRE PENSION FUND, JACKSONVILLE, FLORIDA

    Mr. Keane. Thank you Chairman Shaw and members of the 
subcommittee. My name is John Keane and I am the Administrator 
of the Jacksonville, Florida Police and Fire Pension Fund. I 
have come here today to address a question of fundamental 
fairness. The Government pension offset is punitive and hurts 
most public servants who work not only as police officers and 
firefighters, but as secretaries, school cafeteria workers, 
teachers aides, and others who generally receive lower pension 
benefits.
    Since you are going to put the testimony in the record, I 
am not going to be repetitious, and also in the interest of 
time, I would like to speed along and just point out that we 
believe that the remittance of Social Security contributions 
represents Trust Fund dollars, not general tax revenues. As 
such, they take on a special character of assets that are 
intended to be held in trust for the stewardship responsibility 
of making future distribution of benefits to individual 
retirees--not redistribution to others.
    The penalties imposed on our members are wrong. The whole 
mindset of offsets, penalties, and eliminations in this area 
needs to be abandoned. Various ideas have been presented to you 
that would attempt to minimize or mitigate some of these 
wrongs. However, no matter how many attempts are made to 
provide partial relief, there is no right way to do the wrong 
thing. The fundamental shortcomings of bad public policy 
endures no matter how much garnish or s easing is applied to 
it.
    I thank you for affording me the opportunity to share our 
thoughts with you today and look forward to working with you as 
this debate continues. Thank you, Mr. Chairman and members of 
the committee.
    [The prepared statement follows:]

STATEMENT OF JOHN KEANE, ADMINISTRATOR, JACKSONVILLE POLICE AND FIRE 
PENSION FUND, JACKSONVILLE, FLORIDA

               THERE'S NO RIGHT WAY TO DO THE WRONG THING

    Chairman Shaw and Members of the Subcommittee, thank you 
for this opportunity to testify on the subject of the Social 
Security Government Pension Offset.
    I am John Keane, the Administrator of the Jacksonville, 
Florida Police and Fire Pension Fund. While I am a member of 
the Executive Committee of the National Conference on Public 
Employees Retirement Systems and a committee member of the 
International Foundation of Employee Benefit Plans, I am 
testifying here today on behalf of our membership and 
beneficiaries which include police officers, firefighters, 
retirees, and spouses that either retired from or currently 
work for the Jacksonville Sheriff's Office or the Fire Rescue 
Department. We represent approximately 4,500 citizens.
    I have come here today to address a question of fundamental 
fairness. The Government Pension Offset is punitive and hurts 
most public servants who worked not only as police officers and 
firefighters, but as secretaries, school cafeteria workers, 
teachers' aides, and others who generally receive lower pension 
benefits. Moderate and low-income retirees were never the 
intended targets of the Government Pension Offset. The rule is 
unjust and inequitable and places an unconscionable financial 
burden on certain individuals solely because they happen to 
have been in public service. This inflicts suffering on some of 
the country's most valuable citizens based solely on the fact 
they chose public service careers. Although members of the 
Police and Fire Pension Fund do not pay into Social Security, 
many of our members have done so through other employment 
before, during, and after their service with the City of 
Jacksonville. Many of their spouses have also paid into the 
Social Security system. The Government Pension Offset has 
unintentionally harmed a large number of moderate to low income 
state and local government retirees, mainly women. 
Approximately 300,000 retired federal, state, and local 
government employees have already been affected by the 
Government Pension Offset. For many, the Government Pension 
Offset totally eliminates the Social Security spouse/widow 
benefit. The rest experience a dramatic benefit reduction. 
Thousands more will be affected in the future.
    Under the Government Pension Offset, these retirees have 
their Social Security spousal benefits reduced by two-thirds of 
the amount of their public pension check. Social Security 
benefits of spouses or surviving spouses receiving government 
pensions are essentially reduced by $2 for every $3 earned. In 
1993, the Congressional Budget Office estimated that the offset 
reduces the benefits of 180,000 former public employees by an 
average of $214 a month. They also estimated that about 90 
percent of these retirees lose all their spousal benefits. Not 
only does it reduce the spousal benefit, it also reduces the 
widow or widower social security benefits.
    The private sector is allowed to earn pensions, secure 
matching 401-K contributions, enjoy the benefits of stock 
options and an array of unimaginable forms of entrepreneurial 
compensation that is unheard of in the public sector. In 
addition, private sector employers frequently match the 
voluntary 401-K savings programs of their employees, who enjoy 
the full value of Social Security entitlements which are 
largely received on a tax-free basis to the recipient. At the 
same time, such private sector employees and employers make 
Social Security contributions without fear of ``windfall 
eliminations'' and ``offsets.'' Such concerns are reserved 
solely for a relatively small number of government employees as 
in the case of our members.
    The current law also fails to consider that the average 
employee pays an average of 8% into their pension plan plus the 
average 13% the employer pays. This is a combined contribution 
rate of 21%-much higher than the combined employee/employer 
contribution of 12.4% under Social Security. In the private 
sector, most pension plans require no employee contribution. 
The employer generally underwrites the full cost of the plan. 
As a result, workers covered by Social Security and a private 
pension can claim both benefits, with no offset, at a lower 
contribution than public employees, who must, because they 
receive a government pension, suffer the Government Pension 
Offset.
    The Government Pension Offset law is unfair to many women, 
especially widows, who often lose all of the Social Security 
protection their husbands had provided for them. The Coalition 
to Assure Retirement Equity estimates that 54 percent of those 
affected by the current Government Pension Offset rules are 
women, because women tend to have the lowest pensions and also 
the longest life expectancy. Under current law, a Social 
Security widow's benefit is reduced or eliminated if the widow 
is eligible for a pension based on a local, state, or federal 
job that was not covered by Social Security. The end result has 
been that many thousands of women are unfairly punished by the 
Government Pension Offset, dropping substantial numbers below 
the poverty line in their retirement years.
    The remittance of Social Security contributions represent 
Trust Fund dollars, not general tax revenues. As such, they 
take on a special character of assets that are intended to be 
held in trust for the stewardship responsibility of making 
future distribution for the benefit of the individual making 
the remittance. . . .not for re-distribution to others. Such 
re-distribution mechanisms may be appropriate for the 
application of fiscal policy for income tax revenues, but not 
for trust fund revenues held for the benefit of the retirement 
needs of individuals.
    Our 4,500 members feel that the ``Government Pension 
Offset'' should be issued an honorable discharge. These 
provisions violate fundamental standards of fairness and 
communicate a message to governmental employees that their 
dedicated call to public service will require severe financial 
sacrifices not only during their working careers, but also in 
retirement.
    I support a reform bill that would repeal the Government 
Pension Offset for public pension retirees whose combined 
public pension and Social Security payment is less than $1,200 
per month. This is a targeted reform, designed to help the most 
serious victims of the Government Pension Offset-those with the 
lowest public pensions, primarily women. I trust that bi-
partisan support can be found to advance these legislative 
attempts for the long overdue benefit of our members.
    This is a matter of fairness and the Government Pension 
Offset currently in place penalizes those least able to afford 
it. Not only that, we find that people are often unaware of the 
Government Pension Offset until they look into retirement at 
which time they are shocked and not prepared financially for 
these cuts. The Social Security estimates that are sent to 
individuals often do not include the Government Pension Offset. 
The worst time to learn how the Government Pension Offset can 
undercut plans for financial stability is immediately following 
the death of a life companion. The Government Pension Offset 
most drastically affects low-income widows.
    Those who have worked diligently their entire lives should 
be entitled to reap the fruits of their labor after retirement. 
This bill would help restore fairness and security to the most 
vulnerable public pensioners at a relatively modest cost. The 
Government Pension Offset has just the opposite effect. It 
punishes widows and widowers-who are usually counting on their 
Social Security spousal pension to help them in their 
retirement years-merely because they worked in the public 
sector. Individuals whose working years included federal, 
state, or local service deserve the same consideration for the 
value of their work as the private sector retirees. The people 
that Government Pension Offset is harming are your teachers, 
police officers, firefighters, and civil servants. People who 
often chose to accept less reward in order to serve or educate 
the public. Is it fair to ask them to retire on even less? 
Please, stop the Government Pension Offset from sending more 
retirees into poverty.
    The penalties imposed upon our members are wrong. The whole 
mindset of offsets, penalties and eliminations in this area 
needs to be abandoned. Various ideas have been presented to you 
that would attempt to minimize or mitigate some of these 
wrongs. However, no matter how many attempts are made to 
provide partial relief, ``there is no right way to do the wrong 
thing''

    The fundamental shortcomings of bad public policy endures 
no matter how much garnish and seasoning is applied to it.
    I thank you for affording me the opportunity to share our 
thoughts and concerns with you today and I look forward to 
following your debate on this issue of great importance in the 
coming months.
      

                                


    Chairman Shaw. Thank you, Mr. Keane, for your brevity. We 
do have your full testimony which will be included in the re 
cord.
    Mr. John.

    STATEMENT OF DAVID JOHN, SENIOR POLICY ANALYST, SOCIAL 
                 SECURITY, HERITAGE FOUNDATION

    Mr. John. Thank you, Mr. Chairman, for inviting me to 
testify on this issue. It is my pleasure to be part of this 
panel.
    Social Security is one of this Government's most popular 
programs, yet few Americans know very much a bout how it 
operates or why certain policies were implemented. GPO is an 
excellent example of this confusion. To the 4 percent of the 
workforce whose benefits could be altered by GPO, it is 
patently unfair, and reduces the benefits they or their spouses 
have paid for with hard-earned money. To them, the seemingly 
arbitrary cut in their spousal benefits is made even worse by 
the fact that many only learn of the provision after they do 
not receive retirement benefits they had counted on.
    Those who support eliminating GPO make an emotional case, 
but there is also another side to this issue. While GOP's 
formula is arbitrary, it is also on the average fair. For 
Government workers who a re not covered by Social Security, GPO 
is the equivalent of the dual entitlement rule that affects the 
other 96 percent of American workers. Without it, Government 
workers would have an unfair advantage over those who were part 
of Social Security for their entire working life.
    Proponents of changing or eliminating GPO correctly state 
that private pensions have no affect on the amount of survival 
or spousal benefits that an individual can receive under Social 
Security. However, the comparison between private pensions and 
nonSocial Security Government pension misses the point. Those 
who receive private pensions are also part of Social Security 
and, therefore, subject to the dual entitlement rule. This is 
also true for those who have no retirement income other than 
Social Security, and those Government workers who also 
participate in Social Security.
    It is simply not fair to the remaining 96 percent of the 
workforce to give some Government workers special treatment. 
Most Government workers, and especially teachers, perform 
valuable service to society--I am the son of a teacher. 
However, this alone should not justify eliminating the GPO for 
them while still retaining the dual entitlement rule that 
affects everyone else.
    If this subcommittee decides to eliminate or limit GPO, it 
should also give the same treatment to those who are affected 
by the dual entitlement rule. Doing both would be fair, but it 
would also be quite expensive. For that reason, I am not 
advocating such a step.
    This is not to minimize the shock that an individual, and 
especially a recently bereaved spouse, faces when they receive 
a much smaller retirement check than they anticipated. However, 
GPO has been part of the Social Security program since 1977. 
While I would not blame any individual for not understanding 
the provision, I would also not excuse any non-Social Security 
Government retirement program that does not vigorously work to 
inform workers that they could be subject to it. Today's 
retirees may have been caught unaware, but there is no reason 
for those who are still working to face such an unpleasant 
surprise.
    I am also not making any case that $1,200 a month, much 
less a lower figure, is sufficient for a comfortable 
retirement. Clearly, it is not. As the son of a teacher, it is 
truly shocking to me that all anyone has to show for a lifetime 
of public service is memories and a very tiny check.
    However, GPO is not the main reason that those pensions are 
so low. It may be a contributing factor that further lowers an 
extremely low pension, but it is no more than that. For that 
reason, altering GPO does little more than making a bad 
situation slightly better. The real reason why individuals have 
such low pensions is the subject of another debate--reforming 
Social Security and increasing opportunities for individuals to 
save for retirement. This subcommittee and its members have 
taken a leading role in that debate, and I look forward to 
continuing to work with you in the future to truly increase the 
retirement income of American workers.
    For today, it is true that the elimination of GPO would 
increase the retirement incomes for nearly 300,000 Government 
retirees by an average of about $340 a month. However, those 
millions of other Social Security recipients who are subjected 
to the dual entitlement rule, and who will not be getting any 
relief, have a valid reason to ask why their plight has been 
ignored. Thank you.
    [The prepared statement follows:]

STATEMENT OF DAVID JOHN, SENIOR POLICY ANALYST, SOCIAL SECURITY, 
HERITAGE FOUNDATION

    I appreciate the opportunity to appear before you today to 
discuss Social Security's Government Pension Offset (GPO). This 
is an extremely important subject, and I would like to thank 
the Chairman for scheduling this hearing. Let me begin by 
noting that while I am the Senior Policy Analyst for Social 
Security at the Heritage Foundation, the views that I express 
in this testimony are my own, and should not be construed as 
representing any official position of the Heritage Foundation. 
In addition, the Heritage Foundation does not endorse or oppose 
any legislation.

                 HOW GOVERNMENT PENSION OFFSET OPERATES

    GPO affects the spouses of workers who held jobs that were 
not covered by Social Security. Most of these workers were 
either state and local government employees or joined the 
federal government prior to 1984. Spouses of Social Security 
recipients also qualify for a benefit equal to 50 percent of 
the worker's benefit. However, the dual entitlement rule (see 
below) reduces that benefit dollar for dollar by any Social 
Security benefits that the spouse qualifies for under his or 
her own earnings record.
    Since government workers who were not covered by Social 
Security do not have any of their own Social Security benefits, 
theoretically, they would qualify to receive the full spousal 
benefit. Thus, a person who joined the federal government prior 
to 1984 would be able to receive both his full Civil Service 
Retirement System (CSRS) pension and a Social Security spousal 
benefit equal. In order to eliminate this dual benefit, 
Congress created the GPO in 1977.
    Under this rule, \2/3\rds of the CSRS pension would be 
treated as though it were a Social Security benefit, and the 
spousal benefit that worker could receive is reduced dollar for 
dollar by that amount. Thus, if the CSRS worker had a $1200 a 
month pension, $800 of his or her CSRS pension (\2/3\) would be 
treated as coming from Social Security. If that worker's spouse 
also received $1200 a month from Social Security, that worker 
would also be eligible for a Social Security spousal benefit of 
$600 (\1/2\ the spouses basic retirement benefit). However, it 
would be eliminated because the portion of the CSRS pension 
that is treated as coming from Social Security under GPO is 
larger ($800) than the potential spousal benefit ($600).
    As a result of the GPO, the CSRS worker and his or her 
spouse have received the same treatment as if both of them were 
covered by Social Security. GPO affects about 300,000 retirees, 
and reduces Social Security's aggregate benefits by 
approximately $1 billion annually. While a major proportion are 
retired federal workers, most of the rest were employed by 
state and local governments which chose not to participate in 
the Social Security program. The vast majority of these workers 
come from eight states: Alaska, California, Colorado, 
Louisiana, Maine, Massachusetts, Nevada and Ohio.

                       THE DUAL ENTITLEMENT RULE

    It has long been a principle of Social Security that a 
worker cannot qualify for full benefits under both his or her 
earnings record and that of a spouse. Accordingly, although 
married worker theoretically qualifies for both retirement 
benefits from his or her own earnings record and a spousal 
benefit equal to 50 percent of the spouse's retirement benefit, 
comes under the dual entitlement rule.
    The dual entitlement rule reduces the spousal benefit 
dollar for dollar by the amount of the retirement benefits the 
worker qualifies for under his or her own earnings record. 
Thus, if two spouses each qualify for $1200 a month from their 
own earnings record, and a spousal benefit of $600 a month (1/2 
the basic retirement benefit), they would still only receive a 
total benefit of $1200. The $600 spousal benefit is eliminated 
because it is less than their earned retirement benefit.
    On the other hand, if one spouse received $1200 a month and 
the other $400 a month from Social Security, the lower earning 
spouse would also qualify for a $200 spousal benefit. In that 
case, the $600 spousal benefit from the higher earning spouse 
would be reduced by the lower earning spouse's benefit ($600-
$400), leaving a $200 spousal benefit. The dual entitlement 
rule potentially affects 96 percent of the work force.

                            RECOMMENDATIONS

    Social Security is the government's most popular program, 
yet few Americans know very much about how it operates or why 
certain policies were implemented. Although the average 
American strongly supports Social Security, only a very, very 
few have any conception of how benefits are calculated, what a 
'bend point'' is, or how the trust fund relates to the payment 
of benefits.
    GPO is an excellent example of this confusion. To the 4 
percent of the work force, whose benefits could be altered by 
GPO, it is patently unfair, and reduces the benefits they or 
their spouses paid for with hard-earned money. In addition to 
federal workers hired before 1984, most of those people will be 
located in 8 states. To them, the seemingly arbitrary cut in 
their spousal benefits is made even worse by the fact that many 
only learn of the provision after they don't receive retirement 
benefits they had counted upon.
    Those who support eliminating GPO make an emotional case, 
but there is also another side to the issue. While GPO's 
formula is arbitrary, it is also on the average fair. For 
government workers who are not covered by Social Security, GPO 
is the equivalent of the dual entitlement rule that affects the 
other 96 percent of American workers. Without it, government 
workers would have an unfair advantage over those who were part 
of Social Security for their entire working life.
    Proponents of eliminating GPO or limiting it to cases where 
the individuals' retirement income is under $1200 a month state 
correctly state that private pensions have no effect on the 
amount of spousal or survivors benefits that an individual can 
receive. However, the comparison between private pensions and 
non-Social Security government pensions misses the point. Those 
who receive private pensions are part of Social Security, and 
are therefore subject to the dual entitlement rule. This is 
also true for those who have either no retirement income other 
than Social Security or those government workers who also 
participate in Social Security.
    It is simply not fair to the remaining 96 percent of the 
workforce to give some government workers special treatment. 
Most government workers -and especially teachers--perform a 
valuable service to society. However, this alone should not 
justify eliminating GPO for them, while still retaining the 
dual entitlement rule that affects everyone else. If this 
subcommittee decides to eliminate or limit GPO, it should also 
give the same treatment to those affected by the dual 
entitlement rule. Doing both would be fair, but it would also 
be quite expensive. For that reason, I am not advocating such a 
step.
    This is not to minimize the shock that an individual, and 
especially a recently bereaved spouse, faces when they receive 
a much smaller retirement check than they anticipated. However, 
GPO has been part of the Social Security program since 1977. It 
is neither complex nor complicated. While I would not blame any 
individual for not understanding the provision, I would also 
not excuse any non-Social Security government retirement 
program that does not vigorously work to inform workers that 
they could be subject to it. Today's retirees may be stuck in a 
bad situation, but there is no reason for those who are still 
working to face such an unpleasant surprise.
    I am also not making any case that $1200 a month, much less 
a lower figure, is sufficient for a comfortable retirement. 
Clearly, it is not. As the son of a teacher, it is truly 
shocking to me that all anyone has to show for a lifetime of 
public service is memories and such a tiny check.
    However, GPO is not the major reason that those pensions 
are so low. It may be a contributing factor that further lowers 
an extremely low pension, but it is no more than that. For that 
reason, altering GPO does little more than making a bad 
situation slightly better. The real reason why individuals have 
such low pensions is the subject of another debate--reforming 
Social Security and increasing opportunities for individuals to 
save for retirement. This subcommittee and its members have 
taken a leading role in that debate and I look forward to 
continuing to work with you in the future to truly increase 
both the security and the retirement income of American 
workers.
    For today, it is true that the elimination of GPO would 
increase the retirement incomes of nearly 300,000 government 
retirees by an average of $340 a month. However, those millions 
of other Social Security recipients who are subjected to the 
dual entitlement rule, and who will not be getting any relief 
have a valid reason to ask why their plight has been ignored.
    The Heritage Foundation is a public policy, research, and 
educational organization operating under Section 501(C)(3). It 
is privately supported, and receives no funds from any 
government at any level, nor does it perform any government or 
other contract work.
    The Heritage Foundation is the most broadly supported think 
tank in the United States. During 1999, it had more than 
186,947 individual, foundation, and corporate supporters 
representing every state in the U.S. Its 1999 contributions 
came from the following sources:

    Government 0.0%
    Individuals 42.5%
    Foundations 18.3%
    Corporations 9.6%
    Investment Income 27.2%
    Publication Sales and Other 2.4%

    The top five corporate givers provided The Heritage 
Foundation with less than 6.8% of its 1999 income. The Heritage 
Foundation's books are audited annually by the national 
accounting firms of Deloitte & Touche. A list of major donors 
is available from The Heritage Foundation upon request.
    Members of The Heritage Foundation staff testify as 
individuals discussing their own independent research. The 
views expressed are their own, and do not reflect an 
institutional position for The Heritage Foundation or its board 
of trustees.
      

                                


    Chairman Shaw. Thank you, Mr. John.
    Mr. Atwater.

  STATEMENT OF FRANK G. ATWATER, NATIONAL PRESIDENT AND CHIEF 
  EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF RETIRED FEDERAL 
   EMPLOYEES, ALEXANDRIA, VIRGINIA; AND MEMBER, COALITION TO 
                    ASSURE RETIREMENT EQUITY

    Mr. Atwater. Good morning, Mr. Chairman and members of the 
subcommittee, I am Frank G. Atwater, the National President and 
CEO of the National Association of Retired Federal Employees, 
better known as NARFE. I thank you for scheduling this hearing, 
Mr. Chairman, on the Social Security Government Pension Offset. 
I am grateful that you have afforded me the opportunity to 
testify on an issue of great importance to our members.
    I am wearing two hats today. I am testifying on behalf of 
my own organization, NARFE, which has some 420,000 members of 
Federal retirees, employees, spouses, and their survivors 
across the United States.
    I am also speaking on behalf of the Coalition to Assure 
Retirement Equity, or CARE, a coalition of 43 organizations 
representing millions of Federal, State, and local Government 
retirees and employees. In 1991, CARE was formed specifically 
to address the Social Security Government pension offset which, 
as you are aware, was enacted as part of the Social Security 
Amendments in 1977.
    The GPO Social Security Act amendment, originally enacted 
in 1977, went into effect in 1983, and since then has affected 
over almost 285,000 Federal, State, and local retirees, and I 
heard different numbers this morning and I think those numbers 
change periodically every day, rising. It reduces or eliminates 
the Social Security spousal benefit--wife, husband, widow, or 
widower--to which an affected retiree may be eligible. Two-
thirds of the amount of the monthly Government annuity that the 
retiree has earned is used to offset whatever Social Security 
spousal or survivor benefit might be payable.
    According to the Congressional Budget Office, about 145,000 
retirees from Federal, State, and local Governments had their 
Social Security auxiliary benefits reduced or eliminated as a 
result of the GPO in December 1991. Since then, that figure has 
almost doubled.
    The Social Security Administration states that the number 
of Social Security beneficiaries affected by GPO as of December 
1997 was 270,000-plus. That number increased by December 1999 
to nearly 285,000. Of the 285,000 affected beneficiaries, some 
230,000, or 80 percent, are fully offset--which translates into 
no benefit. It is crucial, sir, for you to note that 104,137, 
or 38 percent of the total number of affected beneficiaries are 
widows or widowers, and 71,000, or 68 percent of them are fully 
offset.
    As noted in the table below, ten States in this country 
represented 169,000 or 63 percent of the total number of 
affected individuals--California, Ohio, and Texas had 
significantly higher numbers than the others, but Illinois and 
Florida follow close behind. I will not read that table to you 
because it is in the record.
    Mr. Chairman, I understand from our members, through 
correspondence with their congressional representatives, that 
there are members of this committee who have concerns regarding 
``means testing.'' I am led to believe that these concerns 
specifically relate to H.R. 1217 and the provisions of a $1,200 
per month threshold before GPO would be applied.
    When Congress enacted the GPO in 1983, it set a means test 
precedent by introducing a means test provision into the Social 
Security program by denying the full application of spousal 
benefits to persons receiving Government pensions. This 
application of denial is not applied to those persons who are 
recipients of annuities or other retirement benefits from the 
private sector.
    We, as Federal annuitants, share your concern over the 
impropriety of means testing in Social Security and believe 
that Congressman Jefferson's bill, H.R. 1217, is the most 
pragmatic approach to the modification of the GPO, in lieu of 
repealing it.
    The preliminary projections of H.R. 1217 are based on a 
threshold of $1,200, and indexed by the Social Security COLA 
over ten years, retroactive to December 31, 1999. Social 
Security Administration actuaries have determined that, just as 
with the earnings test repeal, enactment of H.R. 1217 would 
increase the OASDI long-range actuarial deficit by an amount 
that is estimated to be negligible; that is, less than .005 
percent of the taxable payroll.
    Members of the committee, you were able to expeditiously 
change the Social Security Act to benefit older workers through 
Public Law 106-182. We are now asking you to expend that same 
effort to effect change through H.R. 1217 for Government 
retirees.
    In fact, since repeal of the earnings limit, Government 
workers 65 and older can receive full Social Security benefits 
based on their own work or as spouses or survivors. However, as 
soon as they retire, sir, their Social Security is cut or 
ceases altogether. Therefore, a benefit counted on for 
retirement is paid while one is working, only to disappear when 
needed most--at retirement.
    We urge you to support Congressman Jefferson's legislation, 
H.R. 1217, a proposal to modify the Social Security GPO, as 
supported by millions of Federal, State, and local Government 
employees and retirees across the United States, represented by 
CARE.
    [The prepared statement follows:]

STATEMENT OF FRANK G. ATWATER, NATIONAL PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES, ALEXANDRIA, 
VIRGINIA, AND MEMBER, COALITION TO ASSURE RETIREMENT EQUITY

    Mr. Chairman and members of the Subcommittee, I am Frank G. 
Atwater, the National President and CEO of the National 
Association of Retired Federal Employees (NARFE). I thank you 
for scheduling this hearing on the Social Security Government 
Pension Offset (GPO). I am grateful that you have afforded me 
the opportunity to testify on an issue of such great importance 
to our members.
    I am wearing two hats today. I am testifying on behalf of 
my own organization, NARFE, which represents over 400,000 
federal retirees, employees, spouses, and their survivors 
across the United States.
    I am also speaking on behalf of the Coalition to Assure 
Retirement Equity (CARE), a coalition of 43 organizations 
representing millions of federal, state, and local government 
retirees and employees. In 1991, CARE was formed specifically 
to address the Social Security Government Pension Offset (GPO) 
which, as you are aware, was enacted as part of the Social 
Security Amendments of 1977.
    In 1935, when the Social Security Act was originally 
enacted, it provided the same benefits to workers, with and 
without spouses, and no survivors' benefits. The amendments, of 
the Social Security Act, enacted in 1939, added spousal and 
survivor benefits to provide extra protection to workers with 
families.
    The GPO Social Security Act amendment, originally enacted 
in 1977, went into effect in 1983, and since then, has affected 
over almost 285,000 federal, state, and local retirees. It 
reduces or eliminates the Social Security spousal benefit 
(wife, husband, widow, or widower) to which an affected retiree 
may be eligible. Two-thirds of the amount of the monthly 
government annuity that the retiree has earned, is used to 
offset whatever Social Security spousal or survivor benefit 
might be payable.
    According to the Congressional Budget Office, ``about 
145,000 retirees from federal, state, and local governments had 
their Social Security auxiliary benefits reduced or eliminated 
as a result of the GPO in December 1991.'' \1\ Since then, that 
figure has almost doubled.
---------------------------------------------------------------------------
    \1\ CBO Testimony -Statement of Nancy M. Gordon, Asst. Dir. for 
Human Resources and Community Development, Congressional Budget Office 
before the Subcommittee on Social Security, Committee on Ways and 
Means, US House of Representatives--April 8, 1992
---------------------------------------------------------------------------
    The Social Security Administration states that the number 
of social security beneficiaries affected by GPO as of December 
1997 was 270,975 \2\ . That number increased by December 1999 
to 284,383 \3\ .
---------------------------------------------------------------------------
    \2\ see attachment A--Beneficiaries affected by the GOP as of 
December 1997
    \3\ see attachment B--TABLE G103 -Number of beneficiaries affected 
by the GOP by gender and type of benefit, fully and partially offset, 
December, 1999
---------------------------------------------------------------------------
    Of the 284,383 affected beneficiaries, 229,941 or 80 
percent are fully offset, which translates into no benefit. It 
is crucial for you to note that 104,137 or 38 percent of the 
total number of affected beneficiaries are widows or widowers 
and 71,175 or 68 percent of them are fully offset.
    As noted below, in December 1997, ten states in this 
country represented 169,358 or 63 percent of the total number 
of affected individuals. California, Ohio and Texas had 
significantly higher numbers than the others, but Illinois and 
Florida follow close behind.
    Top Ten States (in descending order) of beneficiaries 
affected by GPO as of December 1997

                        1. California 36,973
                        2. Ohio 34,591
                        3. Texas 24,484
                        4. Illinois 14,827
                        5. Florida 14,301
                        6. Louisiana 10,722
                        7. Massachusetts 10,480
                        8. Colorado 8,243
                        9. New York 7,701
                        10. Georgia 37,036
                        Total 169,358
    Mr. Chairman, I understand from our members, through 
correspondence with their congressional representatives, there 
are members of this committee who have concerns regarding 
``means testing.'' I am led to believe that these concerns 
specifically relate to H.R. 1217 and the provision of a $1200 
per month threshold before GPO would be applied.
    When Congress enacted GPO in 1983, it set a 'means test' 
precedent by introducing a means test provision into the Social 
Security program by denying the full application of spousal 
benefits to persons receiving government pensions. This 
application of denial is not applied to those persons who are 
the recipients of annuities or other retirement benefits from 
the private sector.
    We, as federal annuitants, share you and your colleagues' 
concerns over the impropriety of ``means testing'' in Social 
Security and believe that Congressman Jefferson's bill H.R. 
1217 is the most pragmatic approach to the modification of the 
GPO, in lieu of repealing it.
    Public Law 106-182, introduced as H.R.5 by Congressman Sam 
Johnson, was passed in both houses of Congress and signed into 
law by the President on April 7, 2000. This law ``eliminates 
the earnings test for individuals who have attained retirement 
age.'' The estimated cost of the earnings repeal is projected 
to be $8 billion in the first year and $22.7 billion over the 
next ten years. The projected estimate for H.R. 1217 is about 
$300 million in the first year and $4.4 billion over the next 
ten years.
    These preliminary projections for H.R. 1217 are based on a 
threshold of $1200, and indexed by the Social Security COLA 
over ten years, retroactive to December 31, 1999.\4\ Social 
Security Administration actuaries have determined that, just as 
with the earnings test repeal, enactment of H.R.1217 would 
``increase the OASDI long-range actuarial deficit by an amount 
that is estimated to be negligible (i.e., less than 0.005 
percent of taxable payroll).'' \5\
---------------------------------------------------------------------------
    \4\ see attachment C--est. costs of Cong. Jefferson's proposal 
(preliminary and unofficial SSA figures)
    \5\ see attachment D--Social Security Administration actuarial 
memorandum (February 23, 2000)
---------------------------------------------------------------------------
    Members of the committee, you were able to expeditiously 
change the Social Security Act to benefit older workers through 
Public Law 106-182. We are now asking you to expend that same 
effort to effect change through H.R. 1217 for government 
retirees.
    In fact, since repeal of the earnings limit, government 
workers 65 and older can receive full social security benefits 
based on their own work or as spouses or survivors. However, as 
soon as they retire, their social security is cut or ceases 
altogether. Therefore, a benefit counted on for retirement is 
paid while one is working, only to disappear when needed most--
at retirement.
    We urge you to support Congressman Jefferson's legislation, 
H.R.1217, a proposal to modify the Social Security Government 
Pension Offset, as supported by the millions of federal, state 
and local government employees and retirees across the United 
States, represented by CARE.
    I would now like to introduce Mrs. Ruth Pickard, a member 
of NARFE and a constituent of the Chairman, Congressman Shaw.
    [The Attachments are being retained in the Committee 
files.]
      

                                


    Mr. Atwater. Mr. Chairman, I would like now to introduce 
Mrs. Ruth Pickard, a member of NARFE and a constituent of 
yours, sir. I believe you have met her. This is her first trip 
to Washington, D.C., and she is understandably pretty nervous 
this morning. I told her not to be, but that doesn't mean a 
darn thing, and you know that.
    Chairman Shaw. Mr. Atwater, she was not at all nervous in 
my office. I think she has got a story that I know that my 
colleagues on the committee will be interested in hearing.
    Mr. Atwater. Sir, we appreciate you taking the time to hear 
her.
    Chairman Shaw. Welcome.

  STATEMENT OF RUTH PICKARD, MEMBER, NATIONAL ASSOCIATION OF 
        RETIRED FEDERAL EMPLOYEES, ALEXANDRIA, VIRGINIA

    Ms. Pickard. Thank you, Mr. Chairman and members of the 
committee, I am Ruth Pickard, a 73 year old working woman from 
Palm Beach Gardens Florida. I greatly appreciate the 
opportunity to personally ask you to give early and serious 
consideration to the ways and means of alleviating the dire 
financial consequences of the Government pension offset 
provision.
    The GPO has drastically curtailed my retirement income and 
that of thousands of others. We are being denied Social 
Security benefits not because we have never worked, but because 
we spent some or all of our working years in public service. 
Now we find that our Government work has eroded the retirement 
income we had counted on from years of Social Security taxes we 
and our spouses paid over a lifetime.
    I went to work in 1943 at the age of 16, and left the 
workforce in 1957 to stay home with two young children for 
seven years. All my early years of employment were in the 
private sector.
    In 1963 I went back to work, this time for the U.S. Postal 
Service, where I paid into Social Security until 1967, when I 
became covered by the Civil Service Retirement System. In the 
late 1960s I developed high blood pressure, and then in 1986 I 
suffered a brain aneurysm. Fortunately, I had more than enough 
sick and annual leave to cover five months of recuperation. 
Despite my health problems, I returned to work for the Post 
Office until I retired in 1990 at the age of 63.
    When I applied for Social Security based on my own work, I 
found my benefits reduced considerably, to $112, because of the 
windfall elimination provision of Social Security Act. And 
although I was then divorced after more than 20 years of 
marriage, I was still entitled to additional $248 in wife's 
benefits, I was informed by Social Security that we cannot pay 
you because two-thirds of my Federal annuity was more than the 
wife's benefits I might otherwise have had. That was the 
Government Pension Offset. That was the second time my 
Government service reduced my Social Security.
    I soon realized I could not make ends meet on my Federal 
annuity and my small Social Security check. So six and a half 
years ago I went back to work part-time. I am still working, 
and I still have Social Security taxes deducted from my 
paycheck.
    Today, after 46 years of work, 22 years under Social 
Security, 24 years under Civil Service, and an additional six 
and a half years part time, I have a total monthly retirement 
of $1,245--$1,071 comes from the Federal annuity, and $171 from 
Social Security. And I am still paying about $50 a month into 
Social Security payroll taxes, with little hope of my benefits 
increasing the future unless the Government Pension Offset is 
radically reformed or repealed.
    Mr. Chairman, as one of your own constituents, I greatly 
appreciate your scheduling this hearing to consider the purpose 
and impact of the GPO along with ways to modify it. I hope you 
will give serious consideration to Congressman Jefferson's 
bill, which has been found worthy of support by more than half 
of your colleagues in the House of Representatives. And I 
particularly hope that you and all your colleagues will 
remember that GPO is not just another confusing concept of the 
Social Security Act, nor is it simply a safeguard against 
individuals getting more than their fair share from Social 
Security.
    The GPO is a provision of the Social Security Act which has 
denied benefits to hundreds of hard working elderly 
constituents in each of your States and districts. Unless you 
and your fellow members of Congress change this law, retirement 
security will be difficult, if not impossible for many women 
like me. I commend you all for voting to repeal the Social 
security earnings test so that seniors can afford to work. I 
ask you now to give equal consideration to the GPO so that 
others can afford to retire. Thank you for the opportunity to 
talk.
    [The prepared statement follows:]

STATEMENT OF RUTH PICKARD, MEMBER, NATIONAL ASSOCIATION OF RETIRED 
FEDERAL EMPLOYEES, ALEXANDRIA, VIRGINIA

    Mr. Chairman and members of the Committee, I am Ruth 
Pickard, a 73 year old working woman from Palm Beach Gardens, 
Florida. I greatly appreciate the opportunity to personally ask 
you to give early and serious consideration to ways and means 
of alleviating the dire financial consequences of the 
Government Pension Offset provision (GPO) of the Social 
Security Act.
    The GPO has drastically curtailed my retirement income and 
that of thousands of others. We are being denied social 
security benefits not because we have never worked, but because 
we spent all or some of our working years in public service. 
Now we find that our government work has eroded the retirement 
income we had counted on from years of Social Security taxes we 
and our spouses paid over a lifetime.
    I went to work in 1943 at age 16 and left the workforce in 
1957 to stay home with two young children for 7 years. All of 
my early years of employment were in the private sector.
    In 1963 I went back to work, this time for the U. S. Postal 
Service where I paid into Social Security until 1967, when I 
became covered by the Civil Service Retirement System. In the 
late 1960's, I developed high blood pressure, and then in 1986 
I suffered a brain aneurysm. Fortunately, I had more than 
enough sick and annual leave to cover about 5 months of 
recuperation. Despite health problems, I returned to work for 
the Post Office until I retired in November 1990 at age 63.
    When I applied for Social Security based on my own work, I 
found my benefits reduced considerably, to $112, because of the 
Windfall Elimination Provision of the Social Security Act. And 
although I was then divorced after more than 20 years of 
marriage, and was entitled to an additional $248 in wife's 
benefits, I was informed by Social Security that ``we cannot 
pay you'' because two-thirds of my federal annuity was more 
than the wife's benefits I might otherwise have had. That was 
the Government Pension Offset. That was the second time my 
government service reduced my social security. I soon realized 
that I could not make ends meet on my federal annuity and my 
small social security check, so six and a half years ago I went 
back to work part time. I am still working, and I still have 
social security taxes withheld from each paycheck.
    Today, after 46 years of work--22 years under Social 
Security and 24 years of Civil Service--I have a monthly 
retirement income of $1245-$1071 of government annuity and $171 
of social security. And, I am paying about $50 a month in 
social security payroll taxes, with little hope of my benefits 
increasing in the future unless the Government Pension Offset 
is radically reformed or repealed.
    Mr. Chairman, as one of your own constituents, I greatly 
appreciate you scheduling this hearing to consider the purpose 
and impact of the GPO, along with ways to modify it.
    I hope you will give serious consideration to Congressman 
Jefferson's bill, which has been found worthy of support by 
more than half your colleagues in the House of Representatives. 
But I particularly hope that you and all of your colleagues 
will remember that the GPO is not just another confusing 
concept of the Social Security Act. Nor is it simply a 
safeguard against individuals getting more than ``their fair 
share'' from social security.
    The GPO is a provision of the Social Security law, which 
has denied benefits to hundreds of hard-working elderly 
constituents in each of your states and districts. Unless you 
and your fellow members of Congress change this law, retirement 
security will be difficult, if not impossible for many women 
like me. I commend you all for voting to repeal the Social 
Security earnings test so that seniors can afford to work. I 
ask you now to give equal consideration to the GPO, so that 
others of us can afford to retire.
    Thank you again for the opportunity to appear before you 
today.
      

                                


    Chairman Shaw. Thank you, Ms. Pickard.
    Mr. Matsui?
    Mr. Matsui. Thank you, Mr. Chairman.
    Ms. Pickard, how many months or years did you work and pay 
into the Social Security system?
    Ms. Pickard. Twenty-two years.
    Mr. Matsui. Twenty-two years?
    Ms. Pickard. I paid into it, yes, sir.
    Mr. Matsui. Was it full-time?
    Ms. Pickard. Some of it was, some of it was not. Most of it 
was.
    Mr. Matsui. I was just talking to staff and that does not 
seem right.
    Ms. Pickard. I worked a long time.
    Mr. Matsui. Sure is a long time. I think it is stunning 
that you only received--what?
    Ms. Pickard. Well it has been raised to $171. It started 
out at $112, which was a terrible shock.
    Mr. Matsui. That is just terrible.
    Ms. Pickard. It is, I'm sorry. I agree.
    Chairman Shaw. Thank you very much for your testimony. We 
really appreciate that.
    Ms. Pickard. It was not easy.
    Chairman Shaw. It was very helpful, obviously, and 
insightful.
    Vince, can I ask you a question. I really understand the 
concerns that all of you raise here. What I am trying to 
understand and figure out in my own mind is how we deal with 
the fact that where you have the dual entitlement couple we 
have that offset, and if we do make changes on the GPO, it 
gives those that might have non-Social Security pensions a 
higher benefit than those that have two Social Security 
benefits. I know there is a distinction between the two, one is 
a pension and it is probably fully funded and you pay taxes on 
it. And so there are differences. But at the same time, it is 
just by happenstance that one happened to work for an agency or 
an employer that has Social Security and the other one does 
not. So how does one rationalize that?
    Mr. Sombrotto. Well I rationalize it through the eyes of a 
letter carrier that--
    Chairman Shaw. No, no. I understand that.
    Mr. Sombrotto. He has worked 30 or 40 years in the Postal 
Service, has attained the criteria to be eligible to retire, 
and then does retire. However, during those 30 or 40 years of 
employment, he found it difficult to support a family without 
getting a second job, and most letter carriers of my ilk have 
had the opportunity or been forced to work more than one job to 
support a family because the wages were so low in the Postal 
Service for many, many years.
    And so consequently, you have a letter carrier that pays 
for their Civil Service Retirement, pays a percentage, 7 
percent of his earnings into Civil Service Retirement, and at 
the same time when they worked in the private sector paid 
Social Security. And so I always came to the conclusion that 
you are entitled to those benefits that you paid for.
    And so now the shock comes when after you retire and you 
believed that you were going to get a Social Security benefit 
and then it is offset, that is the windfall. But if your spouse 
was working, in many cases they were, then there is a spousal 
benefit that sometimes is denied a retiree, particularly if 
either of them predeceases the other. For instance, one of the 
interesting things that I was thinking about listening to the 
testimony here, if you have two people, a husband and wife that 
both work in the private sector and are both covered by Social 
Security, they both get Social Security benefits, don't they? 
And whatever that amount is, that is what they live on when 
they retire. If one dies and the other does not, if you offset 
it, then they are living on half as much money as they were 
when both of them were alive. Does that seem fair? I am trying 
to figure out if that is fair.
    Chairman Shaw. I understand what you are saying. I am not 
disputing what you are saying, but a surviving spouse in which 
both earners received Social Security benefits could make the 
same case that you are making now, and legitimately so. That is 
why I am wondering if we should handle it on the basis of 
dealing with the GPO, in the form of Mr. Jefferson's 
legislation, or should you try to deal with it in terms of the 
overall benefits and the overall survivor's benefits that one 
receives in terms of a threshold. That is the only question, 
because I think what you are saying is correct, the problem is 
that there are others that would not benefit from this 
legislation that could make that same case.
    Mr. Sombrotto. And they very well may. And if they do, then 
you have the responsibility to listen to them as you are 
listening to us.
    Chairman Shaw. That is right. And that is why perhaps we 
should try to deal with both problems in a way that tries to 
deal with it comprehensively. That is my concern. Because I 
certainly appreciate the problems that you raise. On the other 
hand, two years from now you can have the same situation from 
those that receive Social Security benefits.
    Mr. Sombrotto. There are two things that I would like to 
say, if I may. One, in terms of looking at it from a letter 
carrier's eyes, if you have someone that is in the private 
sector that works for General Motors, they get a pension from 
General Motors. They are also covered by Social Security. Are 
they covered by an offset?
    Chairman Shaw. No.
    Mr. Sombrotto. No. I understand they are not. The point is 
why is somebody that is in the Federal sector that gets a 
retirement--
    Chairman Shaw. My staff just said under dual--
    Mr. Sombrotto. Under the dual benefit, yes.
    Chairman Shaw. Why don't you finish. I know the time is 
running short.
    Mr. Sombrotto. In order to facilitate the hearing, I will 
delay.
    Chairman Shaw. Mr. McCrery.
    Mr. McCrery. Mr. Chairman, first I want to thank you for 
inviting us to the Palm Beach Gardens Town Meeting. It is nice 
to join you. Ms. Pickard, thank you for coming up and sharing 
with us your story.
    Chairman Shaw. Next time I will do it in February.
    [Laughter.]
    Mr. McCrery. I do not think any of us thinks that the 
system in place is absolutely fair to anyone. However, there 
does seem to be kind of a fundamental hurdle to get over here, 
and that is, why should we treat the GPO different from the 
dual entitlement provision? Why is it not fair for Government 
pensions to be offset and yet fair for dual entitlement 
recipients to be offset? Can anybody answer that question?
    Mr. Keane. I would like to take a shot at that. I think it 
is what pot you are getting the money out of. In our case, when 
our member retires and we pay him a pension benefit, when he 
dies the spouse's benefit is reduced and paid on to the spouse. 
That comes out of the Police and Fire Pension Fund. Folks that 
are getting two benefits out of the Social Security system, 
when one member of the wedded union dies, there is that 
reduction and it applies. In our case, the benefit we are 
paying our members does not come out of the Social Security 
Fund, it is not costing the Social Security Fund any money, and 
we do not think there should be an offset. It is just that 
simple. We just do not think there should be an offset when our 
members paid to Social Security, many of our police officers 
and firefighters are in their second employment pay vast 
amounts into the Social Security. But then that gets on to the 
other side of the issue that is not here before us.
    But it is just wrong to take money from people to say I am 
going to take this money, we are requiring you to pay it, we 
are requiring your employer to match it, and when it comes time 
for you to get in line and go to the pay window and get your 
benefit, they say sorry. It is just not right. The Social 
Security dual entitlement benefit, both of those benefits are 
coming out of the Social Security Trust Fund and that is the 
difference, in answer to your question. The Government pension 
offset issue is that the primary benefit is coming out of 
another source of income that the members paid for. We paid for 
that pension that we receive.
    Mr. McCrery. I follow you, but the dual entitlement 
recipients would say we paid into the Social Security system 
whereas you did not, you paid into the Government pension and 
while you were doing that you were not paying into the Social 
Security system.
    Mr. Keane. In the case of most of the people, sir, they are 
paying. And it is at all levels of the Government--college 
professors are out working at other places in the summer doing 
other things, lots and lots of people in Government service pay 
into the Social Security.
    Mr. McCrery. Mr. John, can you comment on that?
    Mr. John. Yes. With respect to the gentleman to my right, 
the fact is that the benefits that are coming and that are 
offset by GPO were actually paid for by the spouse, the spouse 
that has presumably died by the time you get into survivor 
benefits or something along that line. So that spouse has paid 
for benefits, has received benefits, and now there is the 
question essentially of what is left over here. So there 
actually has been a payment to Social Security, there has been 
a benefit that has been received from Social Security. The fact 
that the basic benefit that the surviving spouse receives from 
this gentleman's pension fund is paid for and funded really 
does not come into the equation here with the payment of the 
spousal benefit because all of that is coming out of a 
different account, a different earner's account, and it is 
coming out of a different trust fund.
    Mr. McCrery. Yes. We are talking about spousal benefit 
here. We are not talking about the worker's benefit. Is that 
right?
    Mr. John. That is correct.
    Mr. McCrery. On the one hand you have got the Government 
pensioner who paid, yes, into a defined benefit plan but he was 
not paying into the Social Security system, and you have got a 
spouse I guess who was not paying into the Social security 
system so she is offset. I still do not understand how the dual 
entitlement folks are different from the GPO folks.
    Anybody else want to take a shot at why you should treat 
them differently? You understand the problem we have as policy-
makers, we feel some sympathy for your plight, but we also feel 
sympathy for the plight of the dual entitlement folks, and then 
when you try to fix it for everybody it is a very expensive 
proposition.
    Mr. Keane. In some of the cases I was speaking about, we 
have a woman who is entitled to Social Security benefits 
because she worked. She is married to a man who belonged to a 
public pension fund and who also paid into the Social Security 
system. And when he dies she is getting whacked twice. That is 
what we are here opposing. We think that this whole question of 
these offsets, if you pay the money in, you ought to be able to 
get it back out. The Social Security folks here testified a 
while ago they are really not sure how many people are offset. 
But when someone asked them for a very precise number, and 
magically it came right up.
    We just think that if the Congress has enacted a law that 
requires our people to pay into the Social Security system, 
when it comes time to get in the pay line, our people ought to 
be there and they should not have their spouse's benefits after 
they expire offset because of the fact they also spent a 
lifetime working a main career in public service.
    Mr. McCrery. Thank you, Mr. Chairman.
    Chairman Shaw. Mr. Levin?
    Mr. Levin. Well, Mr. Chairman, I'm really glad we're having 
this hearing. It's a bit complicated, but I think it is a 
pretty urgent issue.
    I think, Mr. Keane, what you're saying is that in Social 
Security it is different, because in terms of determining 
benefits, when you have two different actuarial pools, it's 
really different than when you have one in terms of setting the 
level of benefits. I think, Mr. McCrery, that's what's being 
said. And clearly we need to wrestle with this.
    Could I just ask a question, because the testimony about 
the benefit that you're receiving--the typical letter carrier, 
say, who works full-time for 30 years, do you know more or less 
what the pension would be, created by Social Security?
    Mr. Sombrotto. Not from Social Security--
    Mr. Levin. Right.
    Mr. Sombrotto. I'm talking about Civil Service Retirement. 
The average would be about $1,300 a month.
    Mr. Levin. Well, I think everybody better digest that. 
That's $16,000 a year.
    Mr. Sombrotto. We ought to know that out of that, at least 
10 percent goes toward payment towards health benefits.
    Mr. Levin. Right. And I think, without getting into another 
issue, part of the dynamite in the prescription medicine issue 
is the retiree who has worked 30 years and is receiving that 
kind of a pension. The 10 percent may be low in terms of their 
overall health care costs.
    Mr. Sombrotto. That's just the premium. In terms of their 
premium in the FEHBA program, they pay about 10 percent, is the 
average, of their annuity towards their benefits. That doesn't 
account for the copays, the monies that they pay for 
prescription drugs, and so on and so forth.
    Mr. Levin. Thank you.
    Chairman Shaw. Let me just follow that up with a question.
    I assume that the 10 percent that they pay is in lieu of 
Medicare?
    Mr. Sombrotto. Well, they pay for Medicare as well. If they 
want Part B, they have to pay for Medicare.
    Chairman Shaw. What are the drug benefits?
    Mr. Sombrotto. Well, that's individual plans. We'll have 
different plans for drug benefits. But Medicare, there are no 
drug benefits under that.
    Chairman Shaw. What is the 10 percent?
    Mr. Sombrotto. The 10 percent is the premium that they pay 
to have one of the programs in the FEHBA program.
    Chairman Shaw. Would that include drug benefits?
    Mr. Sombrotto. In most of them, it will. There will be 
different types of drug benefits. Some will have copays, some 
will have other payment that the individuals, if they go to 
their own pharmacist, they have to pay. They have mail order 
prescriptions, they pay less. There are different types of 
plans. There are some 400 plans in the FEHBA program, and any 
Civil Service retiree can select any one. In the terms of a 
letter carrier, they have the same option.
    Chairman Shaw. Based on 10 percent of the pension?
    Mr. Sombrotto. Yes. They pay an average of about $100-some-
odd a month toward the health plan.
    Chairman Shaw. I guess that's a Government-guaranteed plan 
where the Government picks up the balance of that? That doesn't 
pay for the whole program, does it?
    Mr. Sombrotto. The Government doesn't pay for the retiree. 
It pays a portion, yes. But the individual retiree pays a 
little more than 60 percent of the entire cost of the program.
    Chairman Shaw. And the Post Office picks up the balance?
    Mr. Sombrotto. Yes.
    Chairman Shaw. Okay.
    Mr. Hulshof?
    Mr. Hulshof. Thanks, Mr. Chairman. I appreciate your having 
this hearing, and I think this panel has pointed out the 
dilemma that we face, because we hear very gut-wrenching 
stories.
    Ms. Pickard, as you have indicated to us--and then I think 
it was Dr. Cullinan in the previous panel--one of you 
associated his remarks with yours, saying that the GPO in 
trying to address it is a blunt instrument. On this side of the 
dais, when we pass a law, of course, it is the law of the land; 
and Ms. Pickard, unfortunately, those types of situations that 
you have described, if we had scalpel-like precision we would 
address those specific cases.
    Also, Mr. John, it is interesting--not that I tune into the 
prolific talk shows that have these panels--but it seems that 
sometimes, and you clearly on this panel are outnumbered--but I 
want to ask you, and actually, Mr. Keane, I think the two of 
you could provide a good back-and-forth.
    Mr. John, you say that eliminating the GPO would give 
Government workers an unfair advantage over other workers that 
are covered by Social Security. Is that a fair assessment?
    Mr. John. Yes.
    Mr. Hulshof. Okay.
    Mr. Keane, why do you disagree with that?
    Mr. Keane. I disagree with that for the following reason, 
and I'll use myself as an example.
    I belong to the retirement system. I draw benefits from the 
retirement system, and I work for the retirement system, and 
pay into Social Security. When I die, my wife's benefit from 
the retirement system will be reduced, as it should be. When 
she goes to apply for Social Security, which she's supposed to 
be entitled to, they're going to say, ``We're going to reduce 
your Social Security benefit because your husband not only paid 
into Social Security, but also belonged to that Police and Fire 
Pension Fund.'' And that's what I call wrong. That Social 
Security, I paid for. If I had worked--as in the example that 
was used here earlier--for General Motors, they're not going to 
tell my wife, ``Well, he was working for General Motors, and 
because you're getting that General Motors pension, we're going 
to reduce your Social Security.'' They just don't do it that 
way.
    Mr. Hulshof. And I think you point up the--again, making 
the distinction that Mr. McCrery made, I hope that you have a 
good, long, healthy life--
    Mr. Keane. Me, too. I agree with that.
    [Laughter.]
    Mr. Hulshof.--and you will be getting your pension, and as 
you qualified for, Social Security. We're talking, of course, 
about surviving spouses and our vexing problem.
    Mr. John, any quick comment back to Mr. Keane because of 
his situation?
    Mr. John. Well, the one thing is that if Mr. Keane was 
getting a pension from General Motors, he would also have 
Social Security, and he would also be--in the time that a 
survivor's benefit comes into play here, or a spousal benefit--
there would be an individual entitlement rule that would kick 
in at that point. So if he doesn't have the dual entitlement 
rule, then essentially he is getting, as Dr. Ross' charts 
showed, a fairly significant additional benefit.
    Mr. Hulshof. All right. Now, before you go back to Mr. 
Keane, let me ask you this, because this is what I hear again 
from my NARFE members back home. I am simplifying it greatly in 
the interest of time, but, ``We pay more. We pay more into the 
system.'' In fact, Mr. Keane, we appreciate your brevity in 
your oral testimony, but I went to your written statement and 
you mention on page 2, ``Current law fails to consider that the 
average employee pays an average of 8 percent of their pension 
plan plus the average 13 percent that their employer pays, 
therefore a combined contribution rate of 21 percent, much 
higher than other employees under Social Security.'' So 
therefore we pay more, we're entitled to more. What's your 
answer to that, Mr. John?
    Mr. John. Well, if you included the total amount that I 
paid to Social Security, the 12.6 percent, if you include the 
employer and the employee share--and we're not talking about 
any of the health care portions at that point--in order to have 
a valid comparison, you would also have to compare the amount 
that I put into my pension plan, and/or that my employer 
matches my contributions to my pension plan.
    So essentially, to look at both--if you look, for instance, 
at my personal thing, you would find that roughly 21 percent 
would be about the same.
    Mr. Hulshof. Mr. Keane, did you want to get the last word? 
I see that my time is about up.
    Mr. Keane. Thank you, yes, sir. I do want to respond to 
that.
    My wife, although she worked for the Government for many 
years and she draws a very small pension from the Government, 
she also worked for a number of years, but not enough to 
qualify for a Social Security benefit. So her Social Security 
that she would get had I not worked for the Government, she 
would draw the surviving spouse's share off of the thousands of 
dollars that I'm paying into the Social Security System. But 
because I also worked for a governmental agency, Social 
Security wants to peel some of that money off and not give it 
to her.
    We're not trying to get anything that we didn't pay for. 
That's what I'm trying to do.
    Mr. Hulshof. Thank you, gentlemen. I thank all of you.
    Mr. Chairman, I appreciate it.
    Chairman Shaw. Thank you, Mr. Hulshof.
    Mr. Jefferson, you're not a member of this committee, but 
I'd be willing to make you a ``member for a day'' if you would 
like to ask some questions.
    [Laughter.]
    Mr. Jefferson. Thank you, Mr. Chairman. I accept your 
invitation. I don't have a question so much as I have an 
observation that I think is maybe worthy of being made. It's 
really a reiteration of what I said earlier, with maybe a 
little more of a point to it, based on the testimony.
    When this system was set up, way back in the 1930s, the 
dual entitlement provision was a part of the system, way back 
then. And there wasn't anything like a GPO; it didn't exist, so 
this notion about comparing these two things, you have the one 
and you have the other, it is incongruent to do it that way. It 
turns out now to be an argument that seems to be apparent, but 
back then it wasn't.
    So you ask yourself then, why the gulf between 1936 or 1935 
or whenever it went into effect, and 1983? Why only then did we 
introduce this present provision? I don't know if it was 1977 
when we had the one-for-one, and it was because of a Supreme 
Court decision that came into play which said that a man no 
longer had to prove dependency to get his wife's benefit. 
That's the only thing that happened between 1934 and now.
    So there is no rationale that we're dealing with here, that 
we're wrestling with today, based on the dual entitlement, and 
now the GPO, and if we don't have the one, how do we do the 
other? We're wrestling with a demon here that really doesn't 
exist.
    What really happened was, there were some folks who became 
afraid that it was going to be very expensive to the Social 
Security System if we didn't have a GPO rule. But that's the 
rationale. It wasn't that we were going to treat a set of 
employees unfairly and another set of employees ought to have 
the same treatment; that never was the discussion. Had it not 
been for that decision, we would have the same system today. 
You have a woman presumed to be a dependent, and a man would 
have to establish dependency. The Supreme Court said that's 
unfair; you have to treat everybody the same way; enter the 
GPO.
    So I just want to get the committee to start--not to think 
about these two things, that we have to resolve in our own 
minds--before we can get to the GPO, we have to resolve this 
so-called inequity between the GPO and dual entitlement. That 
is not how it developed historically. So I hope we will kind of 
look at it in a different way.
    Chairman Shaw. Well, I thank this panel, particularly my 
constituent from Palm Beach, Florida. I appreciate your being 
here; it means a lot to us. You've certainly given us a lot of 
things to think about. Next year, I am confident that we will 
be going forward with some type of reform to save Social 
Security. This will certainly be on our plate and on our minds 
next year, and whereas this year with the shrinking legislative 
agenda left with us, and the appropriations before us, I don't 
know if we'll be able to get to it this year as far as actually 
passing the legislation, but we will be looking at it. Fairness 
is vitally important. I do want to be sure that, at least under 
my chairmanship, another notch is not created for future 
generations to have as a headache. But there is an inequity in 
the system that I think we recognize and that you've certainly 
pointed out to us very vividly.
    Again, I want to thank Mr. Jefferson for his input and his 
good work on this particular issue.
    Thank you very much, and we stand adjourned.
    [Whereupon at 12:07 p.m., the hearing was adjourned.]
    [Questions submitted by Chairman Shaw, and Mr. Atwater's 
and Mr. Sombrotto's answers, follow:]

                                                      July 26, 2000
The Honorable E. Clay Shaw, Jr., Chairman
Subcommittee on Social Security of the
Committee on Ways and Means
B-316 Rayburn House Office Building
Washington, D.C. 20515

    Dear Chairman Shaw:

    Thank you again for allowing me to testify on behalf of the 
National Association of Retired Federal Employees (NARFE) and the 
Coalition to Assure Retirement Equity (CARE).
    1. You note that about 285,000 government retirees have their 
spousal benefits reduced or eliminated because of the GPO. How would 
this number change if government workers were affected by the dual 
entitlement rule instead of the GPO (i.e., if they were directly 
covered by Social Security instead of a government pension).
     There is no way for us to know the number of government 
workers who would be impacted differently. Some government retirees do 
not claim their social security because of the ``hit'' they would take 
because of the GPO. Consequently, we have no way of tracking that group 
of affected individuals. In addition, we do not have access to the 
total income figures of affected individuals.
    2. Would your members support a modification of the GPO that 
reduced the size of the offset from \2/3\ to a lower percentage?
     The members of NARFE support full repeal of the offset but 
we would be willing to discuss a one-quarter (\1/4\) offset, in order 
to achieve some relief for those most adversely affected by a GPO 
modification. The current two-thirds (\2/3\) offset is impacting too 
heavily on the affected retirees, and we question that two-thirds (\2/
3\) of the annuity is comparable to social security and in this regard 
believe the one-quarter (\1/4\) offset is a more reasonable 
equivalency.
    NARFE's membership is comprised of over 420,000 government workers, 
retirees, and spouses or survivors of both. We continue to educate our 
members, and other affected coalition groups, through our annual 
conferences, state conventions, detailed information on our website 
(including our weekly hotline), all of our monthly and weekly 
publications (Retirement Life, Washington Letter, etc.), mailings, 
telephone calls, etc. Our members are organized, educated and well 
informed on the GPO issue. We are constantly taking steps to broaden 
and improve the education of the vast numbers of affected individuals. 
The problem is that too many individuals do not know about GPO until it 
is too late to make necessary changes.
    Social Security spousal benefits were created at a time when women 
were more dependent than they are today on their spouses for survival. 
The notion that someone with their own pension is less dependent is 
overlooking the fact that the women retiring today still fall under a 
category of women who were in much lower paying jobs than their spouses 
and had depended on their spouses for a certain standard of living. 
That spouse's death should not relegate them to a life of poverty, 
after they worked so hard to avoid that,--albeit in public service. The 
concept of GPO should not exist in any form. A restructuring of the 
entire Social Security system needs to be researched and modified to 
fit the changing times.
    The number of Social Security recipients affected by the Windfall 
Elimination Provision (WEP) is over one-half million. The number of 
social security recipients affected by GPO is approximately 305,000. 
There are significant numbers that are affected by both and there are 
those unaccounted for because they are not claiming their benefits due 
to the financial penalties imposed by both WEP and GPO. Elimination of 
the WEP and the GPO would eliminate this ``financial hit.'' 
Notwithstanding, at least the elimination of the GPO would eliminate 
the ``double hit'' which is being incurred by so many affected people 
like your constituent, Mrs. Ruth Pickard.
    As we seek a solution to the adversity of the GPO within the ``dual 
entitlement'' rule, we should give equal consideration to this ``dual 
denial'' of social security benefits, which make ``dual entitlement'' 
moot.
    Thank you for the opportunity to elaborate on our testimony and to 
respond to your questions. If you have any further questions, please 
feel free to contact my legislative representative, Reesa Motley-
McMurtry.
            Sincerely,
                                           Frank G. Atwater
                                             National President/CEO
      

                                


                                                       July 6, 2000
Mr. Vincent R. Sombrotto
National Association of Letter Carriers
100 Indiana Avenue, N.W.
Washington, DC 20001

    Dear Mr. Sombrotto:

    Thank you for testifying before our Subcommittee regarding the 
government pension offset. In order to complete our hearing record, I 
would appreciate your answering the following questions:
    1. We have heard many times that government workers are shocked to 
learn at retirement that their Social Security spousal benefits will be 
reduced or wiped out because of the GPO. What does your industry do to 
educate workers about the GPO? Are your members well-informed on this 
issue? Can you take steps to improve GPO education so that your members 
can better take it into account when planning for retirement?
    2. Social Security spousal benefits were created to help people who 
are financially dependent on their husbands or wives. Theoretically, 
someone who has their own retirement pension is less dependent on their 
spouse and, therefore, should not receive a full spousal benefit. Thus, 
the concept of the GPO is consistent with the idea that full spousal 
benefits are based on financial dependency. From this perspective, do 
you agree that the GPO should exist in some form or do you believe that 
full spousal benefits should be paid regardless of whether someone is 
financially dependent on his or her spouse?
    3. Your testimony indicates that one problem with the GPO 
calculation is that the \2/3\ offset is arbitrary. You recommend that 
the percentage should reflect the size of the employer and the pension 
plan. For your industry, what would be an appropriate percentage?
    4. You indicate that some of your members take a ``double hit'' 
because they are affected by both the GPO and the windfall elimination 
provision. Do you have any recommendations for reducing this double 
hit?
    5. You also indicate that government workers receive less favorable 
tax treatment than workers covered by Social Security. Can you explain 
the difference? What are your recommendations for dealing with this 
problem?
    I thank you for taking the time to answer these questions for the 
record and would appreciate your response by no later than July 27, 
2000. In addition to a hard copy of your response, please submit your 
response on an IBM compatible 3.5-inch diskette in WordPerfect or 
Microsoft Word format. If you have any questions concerning this 
request, please feel free to contact Kim Hildred, Staff Director, 
Subcommittee on Social Security at (202) 225-9263.
    Sincerely,
                                          E. Clay Shaw, Jr.
                                                           Chairman
      

                                


Response of Vincent R. Sombrotto

    1. We make extensive efforts to educate our membership 
about the Government Pension Offset. Upon retirement, our 
members receive a packet of material including literature 
produced by the NALC as well as the Social Security 
Administration with full details about their benefits, 
including the GPO. We also have a monthly magazine that goes to 
our entire membership and includes a column by our Director of 
Retired Members which often discusses the GPO.
     In many ways it is easier to educate our members about the 
GPO than it is the Windfall Elimination Provision. This is 
because our members are usually retired for some time before 
the GPO takes effect. The Windfall Elimination Provision hits 
our membership immediately upon retirement, and often comes as 
a big shock.
     We are constantly working on ways to improve our outreach 
to our membership about the GPO (as well as the WEP). It is a 
difficult job because our members are justifiably upset about 
these provisions and focus their attention on the injustice of 
them as opposed to preparing for the consequences of them.
    2. Although we would like to see a full repeal of the GPO, 
it is reasonable to suggest that some portion of a civil 
service annuity is contemplated to be the equivalent of Social 
Security benefits. Operating on that assumption, some form of 
GPO could be appropriate.
    3. The United States Postal Service has nearly 900,000 
employees. This would rank it among the very top employers in 
the country. If you were to look at large private sector 
companies (like AT&T, GM or UPS) it would not be unusual to see 
pension plans that pay annuities of $2500 a month or more, 
excluding any Social Security benefits they would be entitled 
to (and that would be subject to the dual-entitlement rule). In 
contrast, a similarly placed letter carrier, could expect an 
annuity of around $1800, and in all likelihood would receive 
little to no Social Security spousal benefit due to the GPO. 
This does not even take into account the Windfall Elimination 
Provision. It is safe to say that taking into account these 
general numbers, an offset of \1/4\, for instance, would be far 
more accurate than the current 2/3 offset.
    4. Perhaps efforts could be made to exempt a person from 
one of these provisions if they are subject to both of them.
    5. Government annuities, unlike Social Security, are fully 
taxable. Representative Bruce Vento has introduced HR 372 to 
address this problem, and we endorse his approach. His bill 
would allow public-sector retirees to deduct a portion of their 
governmental pension in the same fashion as Social Security 
recipients. Income limitations would be the same and provisions 
would also be made to prevent overly generous exemptions for 
those individuals receiving both private and public annuities.

    [Submissions for the record follow:]

                                                      June 22, 2000
The Honorable E. Clay Shaw, Jr., Chairman
Ways and Means Subcommittee on Social Security
U.S. House of Representatives
Washington, DC 20515

    Dear Mr. Chairman:

    On behalf of 1.3 million members of the American Federation of 
State, County and Municipal Employees (AFSCME), I write in support of 
the Government Pension Reform bill (H.R. 1217), bipartisan legislation 
which was introduced by Rep. William Jefferson. I understand there will 
be hearings on H.R. 1217 in the House Ways and Means Social Security 
Subcommittee, and I request that this letter and attachments be 
submitted for the record.
    The Government Pension Offset (GPO) has unintentionally harmed a 
disproportionate number of women and moderate and lower income state 
and local government retirees. Under the GPO, these retirees have their 
Social Security spousal benefits reduced by two-thirds the amount of 
their public pension check. The end result has been that thousands of 
women are unfairly punished by the GPO, dropping many of them below the 
poverty line in their retirement years.
    This legislation would repeal the GPO for public pension recipients 
whose combined public pension and Social Security payment is less than 
$1200 per month. For more facts on H.R. 1217 and the effect of the GPO 
on public retirees, we have attached a more detailed fact sheet.
    This legislation, which already has 230 cosponsors in the House, 
will help to bring a measure of security to thousands of retired women 
who have been unfairly treated by the Government Pension Offset.
            Sincerely,
                                        Charles M. Loveless
                                            Director of Legislation
    [The attachments are being retained in the Committee files.]
      

                                


STATEMENT OF BROCK GREGG, GOVERNMENTAL RELATIONS MANAGER, ASSOCIATION 
OF TEXAS PROFESSIONAL EDUCATORS

    The Association of Texas Professional Educators (ATPE) 
represents over 100,000 educators in Texas. We have been 
advocating for educators for twenty years and are currently the 
largest professional educator's association in Texas and the 
largest non-union educator association in the nation. ATPE is 
committed to advocating for better benefits for all educators, 
promoting a collaborative work environment, the right for each 
individual to choose the association that they feel represents 
educators' interests, and a desire to provide the best 
education possible for the children of Texas. We encourage the 
committee to consider the following issues as you determine the 
future of the Government Pension Offset (GPO) as it has a 
disproportionate affect on Texas educators the majority of who 
do not participate in social security.
    ATPE supports amending the federal law/rules to eliminate 
spousal offset and windfall provisions that reduce retirement 
benefits to educators whom participate in the Texas Teacher 
Retirement System and Social Security.
    Texas public school employees are mandatory members of the 
state Teacher Retirement System (TRS) and contribute 6.4% of 
pay to the system. They are entitled to an annuity after they 
vest their benefits with 5 years of service. This annuity is 
calculated by the following formula: 2.2% x # of years of 
service x final average salary.
    Currently there are 45 public school districts that 
participate in Social Security in the state of Texas. Therefore 
the large majority of Texas educators do not work at a job that 
pays into both systems on the last paycheck they receive before 
retirement and are not eligible for spousal benefits due to the 
GPO. About 20,000 Texans are affected by the offset.




------------------------------------------------------------------------
           Teacher Retirement System Facts                         1999
------------------------------------------------------------------------
Total Current Members (Active & Retired)                        748,884
------------------------------------------------------------------------
                          Active Member Profile
------------------------------------------------------------------------
Average Annual Salary                                           $26,533
------------------------------------------------------------------------
Average Age                                                          43
------------------------------------------------------------------------
Average Years of Service                                              9
------------------------------------------------------------------------
                     Annuitant & Beneficiary Profile
------------------------------------------------------------------------
Average Monthly Annuities--
a. life                                                       a. $1,560
b. disability                                                 b. $1,096
------------------------------------------------------------------------
Average Age of Current Retirees                                    71.1
------------------------------------------------------------------------
Average Years of Service                                           24.9
------------------------------------------------------------------------

    The average Teacher Retirement System annuity for a Texas 
public school employee is $1,560 per month. That means a person 
who dedicated an average of 25 years to public education is 
forced to live on $18,720 per year. Two-thirds of that monthly 
pension is $1,029.
    Since about 80% of Texas educators are females, we will use 
the male example. The average social security pension amount 
for a male is $1,950; half of that is $975. $975-$1,029=-54, 
which means that very few if any will receive spousal benefits 
and will be forced to live on an amount that is roughly 50-55% 
of their final average salary when their spouse passes away. 
ATPE does not believe public education employees should be 
penalized in this manner, especially considering the fact that 
in Texas alone, we will have a shortage of sixty thousand 
teachers in the 2000-01 school year.
    Texas is one of 13 states where social security eligibility 
is not extended to all public school employees. In general, the 
13 states where school employees are not covered by social 
security, contribution rates, retirement formula multipliers, 
and cost of living adjustments (COLA's) are higher than social 
security states. These higher rates are established by state 
legislatures to make up for the lack of this important federal 
retirement benefit. Unfortunately, in Texas this is not the 
case and Texas tends to rank near the bottom nationwide in all 
major benefit categories.
    The GPO affects nearly 300,000 Americans, according to the 
Social Security Administration as of December 1999, who 
participate in Social Security and though this amount is a 
small percentage of the roughly 45 million participants of 
Social Security, it still should be taken into consideration. 
The legislation, Government Pension Offset Reform (HR 1217), 
introduced by Rep. William J. Jefferson (D-LA) is one that ATPE 
supports. As an organization that represents many Texas public 
servants, we feel that offering a minimum benefit of $1200, 
before the offset is put in place, is a good beginning to help 
replace the income that these public servants lose when their 
spouses pass away. This legislation currently has 246 sponsors 
crossing party lines. Though it is not exactly what ATPE would 
ultimately like to see in this area, Congressman Jefferson's 
legislation is leading us in the right direction to help those 
affected by the offset.
    The impact HR 1217 could have within the teaching 
profession is phenomenal. This legislation will address the 
concerns of not only many of our members, but future educators 
in Texas and around the country. As educators, they provide 
individuals such as you and I with the tools necessary to 
become successful and self-dependent. Please support HR 1217 so 
that we may show the nation's educators that we really 
appreciate what they have given us.
    Thank you for the opportunity to provide this input.
      

                                


Statement of Hon. John Elias Baldacci, a Representative in Congress 
from the State of Maine

    I would like to thank Chairman Shaw and ranking member 
Matsui for the opportunity to present testimony today on the 
Government Pension Offset (GPO). I recently joined a number of 
my colleagues in sending a letter to Chairman Shaw urging him 
to conduct a hearing on the GPO as soon as possible. I thank 
him for his responsiveness.
    One of the most difficult problems for government to deal 
with is the coordination of pension benefits for those 
individuals who qualify for two retirement systems. The Social 
Security benefit formula was designed to provide an exceptional 
return on what was paid in for those who worked under the 
program at a low earnings level, and who have no other 
retirement protection. The intent of the GPO was to ensure that 
an individual's benefit more accurately reflected the period of 
time they worked under the Social Security system and their 
financial status.
    Having said that, I understand the frustration of state and 
federal employees who have worked hard to qualify for two 
seemingly independent retirement systems, only to be told that 
their pension from non-Social Security covered employment will 
affect their Social Security benefits. This, despite the fact 
that they paid into the system just like anyone else, and 
acquired the requisite quarters necessary for full retirement 
benefits. It's not hard to understand why people are upset to 
find that they have much less money on which to retire when 
they contact the Social Security office shortly before their 
retirement date. The GPO is often an unwelcome surprise for 
retirees had not planned financially or emotionally. For many, 
it means the difference between an affordable retirement that 
allows them to remain independent, and one in which they are 
just barely getting by.
    The State of Maine is one of a number of states which has 
an independent retirement system for state and local employees, 
as well as teachers. However, many of those who retire under 
this system have also worked at different jobs in which they 
have paid into Social Security and earned the quarters 
necessary for retirement under that system. They've played by 
the rules, yet they are told--in essence--that they've worked 
too hard and will lose a portion of their benefits.
    Clearly, we are dealing with an issue of fairness here. I 
think many will agree that the GPO has had some unintended 
consequences, particularly for retirees with fairly low 
earnings from separate retirement systems. In order to rectify 
this situation, I have joined many of my colleagues in trying 
to mitigate or eliminate this problem. I'm a proud cosponsor of 
Mr. Jefferson's bill, HR 1217, which would repeal the offset 
for recipients whose combined public pension and Social 
Security payment is less than $1,200 per month. In addition, 
I've cosponsored HR 742, which would completely eliminate the 
GPO, and HR 860, legislation that would restrict the windfall 
elimination provisions to those who have over $2,000 in monthly 
benefits.
    Again, I view this issue as one of fairness to those who 
have worked hard all their lives and who simply want a 
reasonable sense of security in their retirement. That's not 
really asking for a lot given their contributions. I'm hopeful 
we can get some action on this matter later this year.
      

                                


STATEMENT OF JAMES D. MOSMAN, CHIEF EXECUTIVE OFFICER, CALIFORNIA STATE 
TEACHERS' RETIREMENT SYSTEM, SACRAMENTO, CALIFORNIA

    On behalf of the more than 600,000 active and retired 
members of the California State Teachers' Retirement System 
(CalSTRS), I appreciate the opportunity to provide information 
in support of Government Pension Offset (GPO) reform and to 
describe the effects federal offset provisions have on many 
California public school employees at retirement.
    CalSTRS is the third largest defined benefit pension plan 
in the United States. The System has grown steadily to become 
the largest teachers' pension plan in the world. At the time 
CalSTRS was created, the Social Security Administration did not 
exist. That is why in 1913 California elected to establish, 
design, administer and finance its own retirement plan 
(CalSTRS) that would best meet the needs of California's 
educators in public schools. The Teachers' Retirement Board 
(Board) administers our retirement program, and the benefits 
provided for career teachers are superior to the retirement, 
disability and survivor's benefits provided by Social Security.
    There are two federal offset provisions that may affect 
CalSTRS retired members. The first is the subject of this 
hearing, the Government Pension Offset (GPO). The second offset 
that also may affect our retired members is the Windfall 
Elimination Provision (WEP). Both of these Social Security 
offsets and the impact to our retired members are part of the 
detailed discussion to follow.
    Some relief is needed from the GPO and WEP. Both federal 
offset provisions were enacted using the false assumption that 
government pensions are the result of substantial careers in 
public service. CalSTRS, along with many other retirement 
systems, provides a retirement benefit with a minimum of five 
years of service once the member reaches retirement age. 
However, a significant number of teachers have decided to turn 
to teaching late in life after years in private sector 
employment. Many women work part time in the teaching 
profession while also spending more time at home to raise their 
children. These teachers have relatively limited service and 
their chosen career path provides a modest CalSTRS pension. 
Because of the way a government pension can penalize the Social 
Security benefit, it only seems fair that those individuals who 
held jobs in Social Security covered employment, or who are 
eligible for Social Security based on their spouses covered 
employment, be able to count on a more equitable share of that 
income to sustain them through their retirement years. We must 
remember the diversity of circumstances that brings individuals 
to teach in California, and the sporadic work careers of women 
in particular.

Government Pension Offset (GPO)

    The Social Security spousal benefit provides income to 
wives and husbands who have little or no Social Security 
benefits of their own. From the beginning of the Social 
Security program, spousal benefits were intended for women and 
men who were financially dependent on their husband or wife who 
worked at jobs covered by Social Security. The same would apply 
to widows and widowers.
    The original GPO legislation, enacted in 1977, required a 
dollar-for-dollar reduction in Social Security benefits for 
spouses or surviving spouses who received a pension from a 
federal, state or local retirement system not coordinated with 
Social Security, such as CalSTRS. In 1983, the formula was 
modified to allow for a reduction of two-thirds of the 
government pension. The following table illustrates how the GPO 
formula applies to a CalSTRS member whose benefit is based on 
their final average salary at retirement, and is also eligible 
to receive a Social Security spousal benefit based on the 
husband or wife's monthly Social Security benefit of $1,000 for 
years worked in the private sector (numbers are rounded to the 
nearest hundredth):


------------------------------------------------------------------------
                                            Years of CalSTRS Credited
                                                     Service
                                        --------------------------------
                                          5 Years    10 Years   15 Years
------------------------------------------------------------------------
Social Security Spousal Benefit........      $500       $500       $500
CalSTRS Benefit........................      $381       $762     $1,144
GPO (minus \2/3\ of CalSTRS Benefit)...     -$254      -$508      -$763
Rremaining Social Security Spousal           $119       None       None
 Benefit...............................
Combined Retirement Benefits...........      $500       $762     $1,144
Monthly Combined Benefits (if GOP is         $881     $1,262     $1,644
 not applied)..........................
------------------------------------------------------------------------

    Without application of the GPO, the Social Security covered 
spouse at age 65 who receives a monthly benefit of $1,000 for 
years worked in the private sector provides his non-working 
spouse who is also age 65 a Social Security benefit of $500 on 
his account (50% of his $1,000).
    Information provided by Social Security states that 
``before the offset provisions were enacted, many government 
employees qualified for a pension from their agency and for a 
spouse's benefit from Social Security, even though they were 
not dependent on their husband or wife.'' Based on the above 
illustration, it appears that the application of the GPO rule 
should be reconsidered for the lower income level benefit 
recipients of government pensions.
    Social Security used the logic that a person who worked in 
a government job long enough to become entitled to a government 
pension was not completely dependent on the worker. This 
assumption is problematic because in many state and local 
systems, a worker is vested and eligible to receive a pension 
after completing only five years of service. As demonstrated in 
the above scenario, the CalSTRS retired member (a government 
employee receiving a government pension) working between five 
and ten years not only receives a modest pension for the years 
of service in the public education system, but he or she is 
adversely affected by the Social Security spousal reduction as 
a result of the GPO.
    The application of the GPO for CalSTRS retired members 
results in the spousal benefit being entirely eliminated in the 
majority of cases, even though the Social Security covered 
spouse paid taxes for his or her entire working career. The 
current GPO provisions create an inequity in the distribution 
of Social Security benefits for short-term government 
employees. The standard for this narrow class of individuals 
(retired public employees who are the spouses or surviving 
spouses of retirees who were covered by Social Security) is 
inconsistent with the overall provisions of the Social Security 
Act, which is to compensate lower paid workers.
    Current legislation, H.R. 1217 introduced by Representative 
Jefferson, would provide that the reductions in Social Security 
benefits that are required in the case of spouses and surviving 
spouses who are also receiving certain government pensions 
(such as CalSTRS) would be equal to the amount by which the 
total amount of the combined monthly benefit (before reduction) 
and monthly pension exceeds $1,200. If the combined amount 
exceeds $1,200, there would be a dollar-for-dollar offset for 
the excess above $1,200. The bill would also guarantee that the 
offset could not exceed two-thirds of the pension, as 
guaranteed under present law. The $1,200 amount would be 
indexed by annual cost-of-living adjustments. This proposal 
represents a promising start for many of our lower income 
CalSTRS benefit recipients.

Windfall Elimination Provision (WEP)

    This Social Security provision is intended to provide a 
benefit that replaces a percentage of a worker's pre-retirement 
earnings. The formula used to compute benefits includes factors 
that ensure lower-paid workers get a higher return than highly 
paid workers do. For example, lower-paid workers could get a 
Social Security benefit that equals up to 60 percent of their 
pre-retirement earnings. The average replacement rate for 
highly paid workers is about 25 percent.
    Published information from Social Security states that 
prior to the enactment of this provision in 1983, benefits for 
people who spent time in jobs not covered by Social Security 
were computed as if they were long-term, low-wage workers. 
``They received the advantage of a higher percentage of 
benefits in addition to their other pension.'' The following 
table illustrates how application of the WEP can reduce average 
monthly earnings used to figure benefits for a person born in 
1932 and who had actual assumed monthly earnings of $712:


----------------------------------------------------------------------------------------------------------------
        Social Security Covered Employment  (No WEP Applied)           Social Security Covered Employment  (WEP
---------------------------------------------------------------------                  Applied)
                                                                     -------------------------------------------

----------------------------------------------------------------------------------------------------------------
90% of first $531 in wages.............................       $478      40% of first $531 in wages        $212
32% of next $2,671 in wages............................        $58     32% of next $2,671 in wages         $58
15% of remaining wages over $671.......................         +0      15% of remaining over $671           0
Average monthly earnings...............................       $536        Average monthly earnings        $270
----------------------------------------------------------------------------------------------------------------

    As you can see from the above illustration, the individual 
whose employment was not covered by Social Security is 
penalized $266 per month, or $3,192 annually.
    The logic used to enact the WEP assumed that government 
workers in noncovered employment had spent the majority of 
their careers in their government jobs. However, the employment 
histories of individuals subject to this provision are as 
unique as their DNA. Many came to their government jobs after a 
considerable number of years working and paying Social Security 
taxes in the private sector.
    Many individuals who paid into Social Security prior to the 
enactment of WEP were not aware of the reduction created by 
WEP. When they request an estimate from Social Security, they 
are provided with standardized estimates that do not take the 
WEP into consideration. They also do not know their Social 
Security benefits will be reduced when they enter the teaching 
profession. Since each work history is different, WEP creates 
an inequity not only between those subject to WEP, but also an 
inequity between Americans. Neighbors, both having paid into 
Social Security for 15 years on precisely the same earnings 
will not be treated equally if one of them is receiving even a 
minimal pension based on work not covered by Social Security.
    Current legislation, H.R. 860 introduced by Representative 
Barney Frank (D-MA), would restrict the application of the WEP 
to individuals whose income from combined benefits and other 
monthly periodic payments exceeds $2,000. The bill would also 
provide for a graduated implementation of such provision on 
amounts above the $2,000 level.

Combined Effect of Government Pension Offset & Windfall 
Elimination Provision

    Some individuals can be affected by both the GPO and WEP. 
Consider the following case of a widow entitled to a government 
pension, such as a CalSTRS benefit, and Social Security on both 
her own earnings and her deceased husband's earnings. Her case 
is the antithesis of double dipping; this widow suffers from 
``double deducting":

    Widow's Social Security benefits = $991
    Widow's CalSTRS pension = $656
    Widow's own Social Security = $134
    $991--Widow's benefit (based on spouse's employment)
    $134--Reduced by own Social Security
    $857--Total widow's benefit
    -438--Reduced by 2/3 of government pension
    $419--Total widow's benefit

    The application of these provisions can have a severe 
impact on the financial security of retirees who have spent 
some portion of their working careers serving the public (e.g., 
teachers, police officers, fire fighters, and many other 
federal, state and local government workers).
    CalSTRS believes some relief is needed from the Social 
Security offset provisions for those most adversely affected by 
the GPO and WEP. Most of them are women and are typically not 
career teachers, but rather educators who have a minimum of 
five years of service, sometimes more. This limited service 
makes them eligible for a CalSTRS retirement allowance once 
they reach retirement age. However, their limited service 
results in a limited retirement allowance. The reason for 
limited service is that many individuals change careers after 
having worked in the private sector long enough to qualify for 
Social Security benefits at retirement. Consider those 
individuals, particularly women, who work part time as a 
teacher and also stay home to raise their children. These are 
the individuals who may be affected by the GOP and WEP. Their 
limited public service provides for a limited public pension 
from CalSTRS when they retire. They should not be penalized 
because they held jobs in Social Security covered employment, 
or are eligible for benefits from Social Security based on 
their spouse's covered employment.
    Many women were forced to accept entry-level government 
jobs when they were divorced or widowed. Also, there are more 
women educators then men. In fact, the CalSTRS membership is 
made up of 65 percent women and 35 percent men. The GPO harshly 
affects women more than men because their work histories are 
often briefer or more sporadic. Traditionally, many women 
stayed home to raise children in lieu of advancing their career 
instead of building up their retirement assets. They have a 
relatively short career in public service such as teaching and 
rely on their husband's income. Additionally, women's entry-
level jobs resulted in lower pay and smaller pensions, which 
affects the final average salary used for calculating a CalSTRS 
retirement allowance.
    CalSTRS anticipates that more and more teachers will return 
to the classroom as a result of legislation enacted in 1999 
that encourages recruitment and retention of teachers for the 
purpose of satisfying the Class Size Reduction Program. Many of 
these individuals made mid-career changes from the private 
sector and qualify to work as instructors for public schools, 
reinstating from retirement, relocating from other states, etc. 
and now teach in California's schools. These individuals could 
be adversely affected by Social Security offsets if their years 
of teaching service are limited because they have chosen a 
teaching career later in life.
    Many CalSTRS members affected by the GPO and WEP don't 
realize that their Social Security benefits will be offset 
until it is too late to remedy the situation. They are not 
actually aware of the reductions and offsets until they apply 
for Social Security. Education on these topics has been sparse, 
confusing or nonexistent. When Social Security estimates are 
sent to individuals, often the offset provisions are not 
mentioned. Therefore, the estimates received give a false sense 
of security for those whose benefits will be offset.
    Both the GPO and WEP have the harshest impact on those with 
low income, particularly for those individuals who have little 
time to make alternative plans for retirement. Some of these 
individuals must return to work in order to sustain an adequate 
income. If they return to the private sector, they would 
continue to pay Social Security taxes on their covered 
employment. However, this does not necessarily change the 
effects of the offsets.
    Most importantly is our commitment to pursue viable 
solutions for providing relief for those individuals most 
adversely affected by these federal provisions. We believe that 
policy should give way to practical solutions by considering 
various alternative designs that would provide for a more 
phased in approach for applying the offsets to Social Security 
benefits. This could include increasing the threshold, phasing 
in the offset based either on the dollar benefit or the years 
in the Social Security system, and examples of how these 
approaches would work. A more equitable distribution of Social 
Security benefits designed for individuals who work both in the 
private and public sector is apparently necessary.
    This is an extremely important issue for many of 
California's public school educators, and I sincerely thank the 
members of the Ways and Means Subcommittee on Social Security 
for the opportunity to express our concerns about the GOP and 
WEP. Our focus is to provide some form of relief for those 
CalSTRS retired members with very modest incomes, which are 
typically those who have had a shorter teaching career. 
Additionally, we are learning more and more that these 
individuals are not aware of the impact to them personally 
until it is too late. The effects of the GPO and WEP have 
devastated many of our members and their sense of individual 
retirement security. We will continue to gather information on 
this very important issue and offer to share our findings and 
suggestions on this issue as Congress pursues efforts to 
provide relief for those individuals most severely affected by 
these federal provisions.
      

                                


                                                      June 26, 2000
The Honorable E. Clay Shaw, Jr.
Chairman, Subcommittee on Social Security
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

    Dear Chairman Shaw:

    This is in regard to the testimonies scheduled for June 27, 2000, 
and the proposed amendments to Title II of the Social Security Act. The 
amendments would eliminate the reductions in Social Security (SS) 
benefits which are presently required in the case of spouses and 
surviving spouses who are also receiving certain Government pensions.
    Anyone who was eligible to receive a Government pension before 
December 1982 and who met the requirements for SS spouses' benefits in 
effect in January 1977 before July 1, 1983, was able to keep the 
benefits from his or her Government job. That person also received half 
of the spouse's SS in addition to his or her Government pension 
provided he or she was married for at least 20 years and reached age 62 
before July 1, 1983.
    Anyone who did not reach 62 before July 1, 1983, and not eligible 
to receive a Government pension before December 1982, is subject to the 
current Offset Law which is unfair to Government employees, 
particularly women. I was 52 at the time--not exactly a ``spring 
chicken.'' I believe that anyone who was married for 20 years or longer 
as of January 1, 1977, should be eligible to receive half of the 
spouse's SS in addition to a Government pension.
    During World War II (WWII), while the men went to war, 18 million 
women joined the work force. (About 350,000 American women joined the 
Armed Forces.) Before WWII, few women worked outside the home-after 
WWII, these women left the factories and defense plants, etc., so that 
veterans could get work. Parents in the postwar period did not send 
their daughters to college because the women of that generation were 
encouraged to be homemakers. Most girls were married by age 20 and 
starting families. Men were described as the ``bread winners'' and they 
were rapidly advanced in their chosen professions.
    I was married in March 1951--it was not quite 5= years after WWII 
ended in August 1945 and about a year after the United States became 
involved in the undeclared Korea war. I left my job to raise a family 
and I was financially dependent on my husband for 20 years. I went back 
to work in 1971, at the age 40, as a GS-4 secretary with the 
Government.
    At the time I was divorced in April 1973 I had 22 years invested in 
my marriage. Social Security spouses' benefits were guaranteed to 
spouses married for 20 years or longer and the rules did not change 
until 1977--4 years later. When I was 46 years old and just beginning 
to build a pension, the 1977 Governmental decree pulled the rug out 
from under my feet. I earned the right to receive half of my former 
husband's Social Security benefits regardless of where I went to work.
    Meanwhile, the Congress passed another law to protect divorced 
women married for at least 20 years to men working in the private 
sector. Congress demanded that one-half of any pension provided to a 
husband working for a private corporation should be paid to his former 
wife. Somehow, I also was excluded from that law.
    When I retired from the U.S. Department of Agriculture in November 
1996 at age 65+, I had a little more than 29 years of service. However, 
without my husband's SS benefits I must survive on a modest pension. As 
a cancer survivor, I used my savings to pay for chemotherapy treatments 
(that was before I was eligible for Medicare and my provider paid 80 
percent of the fees and I paid 20 percent--a sizeable sum at more than 
$1,200 a shot for chemo plus medical charges). I encountered 
devastating medical expenses. It was that unexpected illness that 
everyone saves for in the event they are stricken. I not only used my 
savings but I also went into considerable debt while I was being 
treated.
    Congress is presently considering Government Pension Offset Bills 
that would provide SS benefits for surviving spouses. Government 
pensioners would collect SS benefits provided the total amount of their 
Government pension combined with their SS benefit would not exceed 
$1,200 a month. Such an offset formula is discriminatory--it is as if 
Congress eliminated SS benefits to retired persons who receive more 
than $200,000 per year income.
    Although the Congress should explore costs-saving methods to 
protect the SS system, they should not discriminate against a 
relatively small group of elderly single women. Most women who were 
married for 20 years before January 1, 1977, are probably already dead 
or they will be dead in 10 to 15 years.
    Please change the law so that anyone who was married for 20 years 
or longer before 1977 will receive his or her Government pension plus 
one-half of their former spouse's SS benefit.
    Thank you for addressing this problem.
            Respectfully,
                                              Isabel M. Cek
                                       College Park, Maryland 20740
      

                                


Statement of Donna Cord, Las Vegas, Nevada

RE: Loss of Social Security Benefits for those receiving 
Government Pensions (related to the GPO)

    Please give me a couple of years of peace when I am too old 
or too ill to work any more. Restore the Social Security 
benefits that will be taken away from me simply because I now 
work for a local government entity and may have a small pension 
some day. Closely related to the government pension offset for 
spouses, I just found out that the Social Security benefits I 
worked for my entire life will be reduced by about 60% if I 
ever collect a pension from my current county government 
clerical position.
    I have worked my entire life and never expected anything 
from my government. But if my health holds out and I can stay 
15 years in my current clerical job, I would only get a pension 
of around $14,000 (with no medical benefits of any kind). This 
would be my only income. Without the Social Security benefits I 
had counted on (either my own, or my share of my ex-husband's), 
I will not even be able to keep a roof over my head.
    Surely this cannot be what Congress intended when it passed 
this law. Did the Congressmen who passed this rule consider how 
this would destroy the futures of the (mostly female) clerical 
workers with low incomes and low pensions? Members of Congress 
with big salaries and big pensions won't miss the Social 
Security. But without being able to collect the full Social 
Security that I had earned before my current job, I have no 
future, and I do not understand how my own government can do 
this to me.
    I am one of the forgotten women in this country--who by 
reason of widowhood, divorce or other life circumstances are 
alone and trying to earn a living as best we can. I have taken 
care of my 85-year-old mother for 10 years with no help from 
anyone --or any government agency. There is help in our country 
for everything from drug addicts to endangered species; it is 
incomprehensible that my own government has imposed this 
punitive measure on those who will most need the help from 
Social Security. I have never asked anyone for help. But I am 
asking for fairness.
    Please give me some hope for a brief future when I am too 
old or too infirm to work.
    Please change the law and restore full Social Security 
benefits to those receiving a government pension of under 
$20,000.
    Thank you, and God bless.
      

                                


Statement of Hon. William D. Delahunt, a Representative in Congress 
from the State of Massachusetts

Dear Mr. Chairman:

    I am writing to commend you for convening today's hearing 
on the Social Security Government Pension Offset, and to share 
with you the depth of concern about this problem in 
southeastern Massachusetts.
    During the course of your hearing today, I understand you 
will hear from officials of the Social Security Administration 
and the Congressional Budget Office. I wanted to attempt to 
supplement the hearing record with testimony from some of those 
directly affected by this inequity.
    As I am sure you know, Massachusetts is one of a handful of 
states where public employees do not participate in the Social 
Security system. During their working years, these nurses, 
teachers, librarians, and school bus drivers were compensated 
only modestly. In retirement, they are hit particularly hard by 
the offset. They receive meager pensions, and the Government 
Pension Offset reduces their low income even further.
    The voices of these retired public employees speak 
compellingly for themselves. From a widow in the town of 
Duxbury:
    ``I am 60 years old and a widow. My husband died of cancer 
in 1981 at age 45, our four children were in middle school and 
high school at the time. My husband's life insurance was used 
to raise and educate through college all of them. I have been a 
school nurse for 15 years. I though that with my school 
retirement approximately $700 a month and my husband's Social 
Security approximately $700 a month that I would be able to 
manage. Upon going to the Social Security Office and inquiring, 
I was told that because I worked in a school I would be 
penalized--that two-thirds of my retirement must be subtracted 
from the Social Security. That is two-thirds of $900 ($600) 
would be taken from my husbands $700 leaving $100 for me. The 
Social Security office said this is grossly unfair to widows. 
My husband worked for 30 years and never got to collect a 
penny. If there is anything you could possibly do to change 
this, I and many other widows working in the public sector 
would be so very grateful.''

    And a retired teacher from Harwich wrote:

    I am writing to you to ask for your help in repealing the 
1977 Government Pension Offset legislation. I feel that it is 
discriminatory in nature and at a time when our surplus is 
bulging, it would help countless people who contributed in good 
faith, but, were met with this unfair legislation in 1977. As a 
retired teacher, who I feel was part of the success of our 
prosperity by educating those youths who went on to great 
successes, it seems only fitting that we should be given our 
full Social Security benefits.''
    These are sensible and powerful testaments to the 
fundamental unfairness of current law--and its disproportionate 
impact on the least fortunate. While I support outright repeal 
of the existing statute, I strongly support HR 1217 which, as 
you know, would apply only to the portion of a surviving 
spouse's monthly pension and Social Security income exceeding 
$1200. HR 1217 would at least address the most serious 
disparities created by the current rules.
    Over a period of year, I have heard from hundreds of 
constituents about he financial and emotional hardship 
resulting from the Government Pension Offset. To help amplify 
on the testimony at today's hearings, I have taken the liberty 
of enclosing selected examples of these testimonials, in hopes 
that these personal accounts will help the Subcommittee tackle 
this problem. I have also enclosed a statement from the Retired 
State, County and Municipal Employees Association of 
Massachusetts for your review.
    Again, I appreciate your commitment to a sense of fairness 
in this area, and would be pleased to asssit the Subcommittee's 
work in any way possible.

Enclosures
    [Attachments are being retained in the Committee files.]
      

                                


Statement of Gilbert G. Gallegos, National President, Grand Lodge, 
Fraternal Order of Police

    Good morning, Mr. Chairman and distinguished Members of the 
House Subcommittee on Social Security. My name is Gilbert G. 
Gallegos, National President of the Fraternal Order of Police. 
I am the elected spokesperson of more than 290,000 rank-and-
file police officers--the largest law enforcement labor 
organization in the United States. I am here this morning to 
talk about the ``Government Pension Offset'' and to urge this 
Subcommittee to adopt H.R. 1217, the ``Government Pension 
Offset Reform Act.''
    Social Security was established in 1935 and originally 
excluded all State and local employees. In the 1960s, these 
employees were given the option to participate in the Social 
Security system, prompting public sector employees in thirty-
seven (37) States to enroll. The remaining thirteen (13) States 
and a number of local governments in two others chose instead 
to maintain and enhance their existing retirement systems.
    While the ``Government Pension Offset'' (GPO) affects 
public employees across the country, the impact is most acute 
in fifteen (15) States: Alaska, California, Colorado, 
Connecticut, Georgia (certain local governments), Illinois, 
Louisiana, Kentucky (certain local governments), Maine, 
Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas. 
It is estimated that over 284,000 local, State and Federal 
employees have unfairly been affected by the Government Pension 
Offset. In the public safety community, seventy-five percent 
(75%) of all law enforcement officers do not pay into Social 
Security--meaning they are likely to be affected by the GPO in 
the future.
    In 1977, Federal legislation was enacted that required a 
dollar-for-dollar reduction of Social Security spousal benefits 
to public employees and retired public employees who received 
earned benefits from a Federal, state, or local retirement 
system. Following a major campaign to repeal the provisions in 
1983, Congress adopted the ``Government Pension Offset,'' which 
limits the spousal benefits reduction to two-thirds of a public 
employee's retirement system benefits. This remedial step falls 
far short of addressing the inequity of Social Security 
benefits between public and private employees.
    It is estimated that the spousal benefit is eliminated 
entirely in nine out of ten cases, even though the covered 
spouse paid Social Security taxes for many years, thereby 
earning the right to these benefits. Moreover, these estimates 
do not capture those public employees or retirees who never 
applied for spousal benefits because they wrongly believed 
themselves ineligible.
    According to the Congressional Budget Office, the 
government pension offset reduces benefits for some 200,000 
individuals by more than $3,600 a year. Ironically, the loss of 
these benefits may cause these men and women to become eligible 
for more costly assistance, such as food stamps.
    The present system creates a tremendous inequity in the 
distribution of Social Security benefits. The standard for this 
narrow class of individuals--retired public employees who are 
surviving spouses of retirees covered by Social Security--is 
inconsistent with the overall provisions of the Social Security 
Act and does not apply to persons receiving private pension 
benefits. This imbalance exists even though Congress, through 
ERISA standards and tax code provisions, has more direct 
influence over private employers than public employers.
    For example, the wife of a retired law enforcement officer 
who collects a government pension of $1,200 would be ineligible 
to collect her widow's benefit of $600. Two-thirds of $1,200 is 
$800, which is greater than the spouse's benefit of $600 and 
thus making her unable to collect it. If the spouse's benefit 
was $900, she would collect only $100, because $800 would be 
``offset'' by her government pension.
    The F.O.P. believes this is an issue of fairness and that 
the offset scheme currently in place penalizes those employees 
least able to afford it. Law enforcement officers, many of whom 
do not participate in the Social Security system, are 
especially affected.
    The Fraternal Order of Police is working to pass H.R. 1217, 
the ``Government Pension Offset Reform Act,'' introduced by 
Congressman William Jefferson. This legislation would amend the 
Old Age, Survivors and Disability Insurance (OASDI) of the 
Social Security Act to modify the formula for determining the 
amount of reduced monthly OASDI benefits payable to a spouse, 
surviving spouse, or parent receiving monthly payments from a 
Federal or State pension plan. This new formula would decrease 
the benefit reduction to the lesser of either the amount by 
which the total amount of the combined monthly benefit (before 
reduction) and monthly pension exceeds $1,200, adjusted for 
inflation; or an amount equal to two-thirds of the amount of 
any such monthly pension plan payment.
    We believe this issue cannot be completely separated from 
another ``offset'' which we view as equally punitive on law 
enforcement officers and other government workers--the 
``Windfall Elimination Provision'' (WEP). This provision was 
also enacted in 1983 as part of the reform package designed to 
shore up the financing of the Social Security system. Its 
purpose was to remove a so-called ``windfall'' for persons who 
spent some time in jobs not covered by Social Security (like 
public employees) and also worked other jobs where they paid 
Social Security taxes long enough to qualify for retirement 
benefits. The practical effect on low-paid public employees 
outside the Social Security system, like law enforcement 
officers, is that they lose up to sixty percent (60%) of the 
Social Security benefits to which they are entitled--a loss, 
not an adjustment for a ``windfall.''
    The WEP went into effect in 1985 and applies a modified 
formula to any individuals who collect a government pension 
designed to reduce the amount of their Social Security benefit. 
This provision has created a very real inequity for many public 
employees, particularly police officers who retire earlier than 
other government employees to begin second careers which 
require them to pay into the Social Security system. These 
individuals are penalized under current law.
    Again, we regard this as an issue of fairness. The WEP 
substantially reduces a benefit that workers had included and 
counted on when planning their retirement. The arbitrary 
formula, when applied, does not eliminate ``windfalls'' because 
of its regressive nature--the reduction is only applied to the 
first bracket of the benefit formula and causes a relatively 
larger reduction in benefits to low-paid workers. It also 
overpenalizes lower paid workers with short careers or, like 
many retired law enforcement officers, those whose careers are 
evenly split inside and outside the Social Security system.
    To correct this inequity, the Fraternal Order of Police is 
also working to pass H.R. 742, the ``Social Security Benefits 
Restoration Act,'' introduced by Congressman Max Sandlin. The 
bill would repeal the ``Windfall Elimination Provision'' 
entirely. I urge this Subcommittee to consider and pass 
legislation addressing both the ``Government Pension Offset'' 
and the ``Windfall Elimination Provision.''
    I want to thank you, Mr. Chairman, for the chance to appear 
before you today.
      

                                


Statement of Hon. David L. Hobson, a Representative in Congress from 
the State of Ohio

    MR. CHAIRMAN, thank you for holding a hearing on this issue 
and for the opportunity to voice my support for the 
Subcommittee's attention to the Government Pension Offset 
(GPO). By working together, I believe we can find a reasonable, 
bipartisan solution to this situation.
    Ohio's 7th Congressional District is home to many of our 
civil service retirees and GPO reform is an issue of great 
interest to my area. I commend the Chairman for assembling this 
informative and diverse panel. By hearing testimony from the 
Social Security Administration, the Congressional Budget 
Office, and individuals who receive government pension 
benefits, the Subcommittee will be better prepared and informed 
as we look for a way to improve Social Security. When we review 
such issues as the GPO, I believe we should do so with our 
overall goal in sight: improving Social Security for present 
and future retirees.
    I am encouraged that the Subcommittee has chosen to have 
this informational and bipartisan hearing on Rep. Jefferson's 
legislation, H.R. 1217. I look forward to working with my 
colleagues towards an agreement which both protects Social 
Security and the benefits of those who receive government 
pensions.
      

                                


Statement of Kenneth T. Lyons, National President, National Association 
of Government Employees, Alexandria, Virginia

    Chairman Shaw, Members of the Subcommittee, my name is 
Kenneth T. Lyons. I am the National President of the National 
Association of Government Employees (NAGE). NAGE is an 
affiliate of the Service Employees International Union, the 
second largest union in the AFL-CIO. NAGE is proud to represent 
over 150,000 employees in federal, state and local government.
    Thank you for the opportunity to discuss with you the 
Government Pension Offset. This provision enacted in 1977, 
reduces Social Security spousal benefits, i.e., benefits 
payable as a dependent of a Social Security-Covered Worker, to 
persons who receive a pension from Government Employment that 
was not covered by Social Security. The GPO is intended to 
place retirees whose Government Employment was not covered by 
Social Security and who are eligible for a Social Security 
spousal benefit in approximately the same position as other 
retirees whose jobs were covered by Social Security.
    The GPO law assumes that the public-plan contributions that 
exceed Social Security rates are equivalent of contributions to 
a private pension plan. This reasoning precipitated the 1983 
Offset Revision, which reduces the original 100 percent offset 
to the current two-thirds.
    The Pension Offset aimed at high paid Government Employees 
also applies to public service employees who generally receive 
lower pension benefits. It is estimated that GPO has affected 
some 271,000 federal, state and local retirees.
    Proponents of the Pension Offset claim that the offset is 
justified because survivor benefits were intended to be in lieu 
of pensions. However, were this logic followed across the 
board, then people with private pensions would be subject to 
the offset as well. But this is not the case.
    While Social Security benefits of spouses or surviving 
spouses earning government pensions are reduced by $2 for every 
$3 earned. Social Security benefits of spouses or surviving 
spouses earning private pensions are not subject to offset at 
all.
    To address the problems of the GPO, the National 
Association of Government Employees has endorsed H.R. 1217, the 
GPO reform bill, introduced by Representative Jefferson of 
Louisiana. The Jefferson Bill would permit public pensioners 
who are not covered by Social Security to keep as much as $1200 
a month in combined pension and Social Security Spouse or 
Widows' Benefits before the two-thirds offset is imposed. This 
is a targeted approach to GPO Reform.
    The Jefferson Bill has over 235 cosponsors, which indicates 
a great deal of support. It is our hope Mr. Chairman, that your 
subcommittee will look favorably on H.R. 1217. NAGE believes 
that the thousands of people hurt by the GPO deserve to live 
their retirement years with some form of financial security. 
H.R. 1217 will begin the move to restore equity between public 
and private employees in the distribution of Social Security 
benefits.
      

                                


Statement of Robert T. Scully, Executive Director, National Association 
of Police Organizations

                            I. Introduction

    I am Robert Scully, the Executive Director of the National 
Association of Police Organizations, otherwise known as NAPO. I 
am a retired police officer who served for 25 years with the 
Detroit Police Department. I also served as a full-time elected 
officer of the Detroit Police Officers Association and was a 
collective bargaining team member from 1973--1992. In addition, 
I was NAPO's elected president from 1983 to 1993.
    NAPO is a national non-profit organization representing 
state and local law enforcement officers throughout the United 
States. NAPO is a coalition of police associations and unions 
serving to advance the interest of law enforcement officers 
through advocacy, education and legislation. NAPO represents 
4,000 organizations, with 220,000 sworn law enforcement 
officers and 11,000 retired officers, who put their lives on 
the line daily to protect the American public.
    I would like to take this opportunity to thank Chairman E. 
Clay Shaw, Jr., and members of the Subcommittee on Social 
Security of the Committee on Ways and Means, for holding this 
hearing on the Government Pension Offset (GPO). The GPO, 
instituted in 1977 and later amended in 1983, calls for a two-
thirds offset for Social Security benefits of spouses or 
surviving spouses earning government pensions that did not pay 
into Social Security. The federal Government Pension Offset law 
unduly penalizes federal, state and local public employees from 
receiving spouses or surviving spouses' Social Security 
benefits. NAPO strongly supports a remedy to alleviate the 
impact and severity of the GPO and its effect on public 
employees. NAPO urges members of the House of Representatives 
to pass H.R. 1217, legislation, which if enacted, would 
alleviate the offset for some public employees.

           II. Brief History of the Government Pension Offset

    Social Security provides spouse's benefits to wives or 
husbands who receive partial Social Security benefits or none 
at all. However, within the Social Security system, an 
individual cannot receive both his/her own Social Security 
benefit, as well as a full spousal benefit from Social 
Security. This is prohibited under Social Security and is 
commonly known as 'dual entitlement.' For example, an 
individual's own Social Security offsets dollar for dollar the 
amount the individual may receive from a spouse's Social 
Security benefit. The intention of the spousal benefit was for 
those spouses who depended on their husbands or wives for 
financial needs.
    Before the GPO was instituted, it was possible for an 
employee to receive a pension that didn't pay into Social 
Security and a spouse's benefit from Social Security. Congress 
felt that this was 'dual entitlement' and enacted the GPO law 
as part of the 1977 Social Security Amendments. The law treated 
government pensions and annuities as though they were Social 
Security benefits. This law provided a dollar for dollar offset 
of a spouse's Social Security benefit if that individual also 
received a government annuity that did not pay into Social 
Security. If the individual was eligible to receive a 
government pension before December of 1982, they were exempted 
from the GPO.
    The dollar for dollar offset was an excessive penalty for 
local, state and federal employees. An individual in the 
private sector who received a pension and Social Security was 
exempt from the 'dual entitlement' rule. In 1983 Congress 
changed the dollar for dollar amount to a two-thirds offset. 
Therefore, a public employee who earned a government pension 
and was eligible for a spouse or widow's benefit was subject to 
the two-thirds offset of their pension under the 'dual 
entitlement' rule.

               III. The Effect of GPO on Public Employees

    NAPO strongly feels that the two-thirds offset of a 
government pension on a widow or spouse's benefit is excessive, 
unfair and an imprecise calculation. It is estimated that over 
284,000 local, state and federal employees have unfairly been 
affected by the Government Pension Offset. In the public safety 
community 75% of all law enforcement officers do not pay into 
Social Security and have the potential to be stricken by the 
excessive affects of the GPO. The two-thirds offset of a widow 
or spouses' benefit can have a serious affect on a retiree 
living off a monthly income.
    For example: If a widow received $600 from a government 
pension and was eligible for a $400 widow's benefit from Social 
Security, the two-thirds offset would diminish the Social 
Security benefit to $0. Therefore, the retiree would receive a 
combined monthly benefit of $600 from the government pension 
and Social Security benefit.
    The GPO is a complicated and often confusing rule that 
affects hundreds of thousands of local, state and federal 
employees. Public employees have little knowledge of the offset 
and the affect it has on their Social Security benefit. For 
many employees, the GPO will come as a complete surprise, 
devastating retirees' future financial planning.
    NAPO recognizes the genesis of the 'dual entitlement' 
provision that prevents retirees from receiving both their own 
Social Security benefit and a full spousal benefit. However, 
the 'dual entitlement' provision, which led to the advent of 
the GPO, is an excessive reduction of Social Security benefits 
for public employees. The public sector employer-employee ratio 
of contributions is far greater than that of Social Security. 
Originally the GPO provision assumed that public pensions 
exceeding the Social Security contributions were equivalent to 
a private pension, thus instituting the dollar-for-dollar 
offset. After further examination by Congress, the offset was 
changed to its current level of two-thirds which we still find 
to be excessive, especially for low to middle income retirees.
    Furthermore, many employees in the private sector 
contribute a minimal amount to their pension plan. Most of the 
contributions, if not all, come from the employer. However, 
private sector employees receive both their private pension and 
a full Social Security benefit without any offset for their 
Social Security benefit.

             IV. Legislation to Correct the Inequity of GPO

    There have been a number of legislative proposals to 
rectify the inequity and unintended consequences of the GPO on 
low and middle income retirees. One proposal included the 
complete repeal of the GPO. However, NAPO recognizes the cost 
associated with such a proposal. Another proposal offered to 
lessen the financial impact of the GPO would be to change the 
offset to one-half instead of the two-thirds offset for Social 
Security benefits. This proposal would partially alleviate the 
fiscal burden on retirees. A third proposal, which NAPO has 
endorsed, would put a cap on the combined monthly income of a 
public pension and a widow or surviving spouse Social Security 
benefit that would be affected by the offset.
    In the 102nd Congress, legislation was introduced that 
would eliminate the offset of public employees whose combined 
income did not exceed a certain amount. Congressman William 
Jefferson (D-LA) introduced a bill in the 104th Congress that 
would remove the offset for anyone whose combined public 
pension and widow or spousal Social Security benefit was less 
than $1,200 a month. This legislation would have the greatest 
impact on those who have been affected the most by Social 
Security-low to middle income retirees.
    Since the beginning of the 105th Congress, NAPO has been an 
active member of the CARE coalition (Coalition to Assure 
Retirement Equity) whose objectives are to ensure equal 
retirement benefits for public employees. NAPO, along with the 
43 members of the CARE coalition have actively lobbied and 
endorsed H.R. 1217, the 'Limitation on Reductions in Benefits 
for Spouses and Surviving Spouses Receiving Government 
Pensions,' in the 106th Congress. Congressman William Jefferson 
has re-introduced this legislation, which would eliminate the 
offset for anyone whose combined monthly benefit from a 
government pension and a spouse's Social Security benefit is 
$1,200 or less. This legislation has received bipartisan 
support and currently has 243 cosponsors.
    I urge the members of the Social Security Subcommittee to 
consider strongly the financial impact of the GPO on retirees 
and support this meaningful legislation. H.R. 1217 would 
alleviate the unfair financial burdens of the GPO on hundreds 
of thousands of low to middle income public employees. We have 
experienced an unprecedented robust economy that has generated 
a large federal surplus. We need to help those who need it the 
most, including law enforcement officers who put their lives on 
the line everyday.

                             V. Conclusion

    The GPO has a profound effect on the economic security of 
retirees, who receive a government pension and rely on the full 
payment of their widow or spouse's Social Security benefit. The 
law unfairly offsets benefits of recipients whose pensions were 
not covered by Social Security and exempts individuals who 
earned their pension in the private sector. The excessive GPO 
offset will continue to impact adversely the law enforcement 
community, especially given the fact that 75% of law 
enforcement officers do not pay into Social Security. 
Furthermore, public pensions are taxed, while Social Security 
is not if the income falls below a certain amount, adding to 
the host of inequities facing many public sector workers. With 
the state of our economy, NAPO urges the Congress to act now on 
this important legislation.
    Thank you for the opportunity to submit a statement for the 
record.
      

                                


                                                      June 26, 2000
The Honorable E. Clay Shaw, Jr., Chairman
Social Security Subcommittee
U.S. House Ways and Means Committee
B-316 Rayburn House Office Building
Washington, DC 20515

Re: Support for HR 1217

    Dear Chairman Shaw:

    I write on behalf of the National Conference of State Legislatures 
in support of HR 1217 and other efforts by Congress to address the 
inequities and unintended consequences to state and local government 
retirees caused by the Government Pension Offset (GPO). NCSL is 
appreciative of your efforts to draw attention to the fundamental 
unfairness faced by government retirees as a result of the Government 
Pension Offset. I urge the Ways and Means Committee to expeditiously 
forward legislation to the House floor that will reduce the detrimental 
impact of the GPO on government retirees.
    Several proposals before Congress, including HR 1217, sponsored by 
Representative William Jefferson of Louisiana, would exempt a portion 
of uncovered government pension benefits from application of the GPO 
and would adjust this amount annually for inflation. HR 1217 in effect 
creates a combined monthly minimum benefit of government pension and 
Social Security benefits, $1,200 in 2000. HR 1217 would insure that 
government retirees have adequate financial support in retirement and 
would restore the safety net for thousands of retirees who qualify for 
both an uncovered public pension benefit and Social Security spousal 
(widow's) benefits.
    The GPO, as currently imposed, imprecisely and unfairly reduces the 
spousal benefit received by those who have earned an uncovered 
government pension benefit. These reductions have unintentionally 
harmed moderate and lower-wage earners, and have disproportionately 
harmed women who have earned uncovered government pensions. Further, 
the offset provides a disincentive to work and may contribute to 
elderly poverty.
    Proponents of the GPO argue that the offset reinforces the ``dual 
entitlement rule.'' Under the dual entitlement rule Social Security 
beneficiaries who qualify for both an earned benefit and a spousal 
benefit receive the greater of the two benefits. The assumption 
underlying the dual entitlement rule is that spousal benefits are 
intended to provide a safety net to those who are financially dependent 
upon their spouse.
    The GPO as currently imposed makes no determination as to the 
financial dependency of a government retiree on his or her spouse, who 
may have also earned an uncovered government pension. As imposed, the 
Government Pension Offset (GPO), reduces the Social Security spouse's 
(widow's) benefit by two-thirds (\2/3\) of the amount of the public 
retirement benefit received by the beneficiary. In some cases, the 
offset eliminates the Social Security benefit entirely. The GPO makes 
no accommodation as to the value of the uncovered pension benefit 
received, nor does the Social Security Administration make any 
determination as to the level of support provided to the household as a 
result of uncovered government work or from the uncovered government 
pension benefit.
    In many states and localities, a worker is vested and eligible to 
receive a pension after completing only a few years of service. Retired 
government workers who receive a full pension benefit from uncovered 
work and those who received only a partial benefit have their Social 
Security spousal benefit reduced by the same two-thirds. Similarly, 
retirees whose work may have been interrupted by illness, childbearing, 
child rearing or other familial responsibilities have their spousal 
benefits reduced by two-thirds. Again, the offset as imposed does not 
take these reduced benefits under consideration in determining the 
level of spousal benefit received.
    The National Conference of State Legislatures believes that H.R. 
1217 provides the best opportunity to address the inequities and 
unintended consequences that result from the unilateral imposition of 
the GPO on government retirees. We urge passage of this legislation 
during the 106th Congress. H.R. 1217 has broad bipartisan support and 
is co-sponsored by 243 members of the House. Further, the Social 
Security actuaries have determined that the cost of ``enactment of this 
proposal would increase the OASDI long range actuarial deficit by an 
amount that is estimated to be negligible.'' Given these circumstances 
we believe that action on HR 1217 would benefit a large number of 
retirees with very little burden, both administratively and 
financially, to the federal government.
    We appreciate your consideration of the views of the National 
Conference of State Legislatures on this issue. If NCSL or I can 
provide additional information or support, please contact our committee 
staff, Gerri Madrid at (202) 624-8670.
            Sincerely,
                               Representative Robert Junell
                                     Texas House of Representatives
                  Chair, AFI Federal Budget and Taxation Committee,
                          National Conference of State Legislatures
      

                                


Statement of the National Education Association

    Mr. Chairman and Members of the Subcommittee:

    On behalf of the National Education Association's (NEA) 2.5 
million members, we would like to thank you for the opportunity 
to submit our comments on the issue of the Social Security 
government pension offset.
    NEA members strongly support elimination of the government 
pension offset. This discriminatory offset unfairly reduces the 
spousal survivor Social Security benefits of retired public 
employees who receive pension benefits from another retirement 
system but are not themselves covered by Social Security. While 
retired public employees have an amount equal to two-thirds of 
their pension benefits deducted from any Social Security 
survivor benefits, non-public employees with private pensions 
get to keep their entire pension and receive their full Social 
Security survivor benefits. The offset thus severely and 
unfairly limits the retirement benefits of public employees.

Background

    The original Social Security system, established in 1935, 
excluded state and local government employees from coverage. In 
the 1960s, however, state and local employees were given the 
opportunity to elect to participate in the Social Security 
system. As a result, public sector employees in 36 states opted 
to enroll in Social Security in the 1960s and 1970s. The 
remaining 13 states and a number of local governments in two 
others chose instead to maintain and enhance their existing 
retirement systems.
    In 1977, Congress enacted legislation requiring a dollar-
for-dollar reduction of Social Security spousal benefits to 
public employees and retired public employees receiving earned 
benefits from a federal, state, or local retirement system. In 
response to significant calls for repeal of this dollar-for-
dollar reduction, Congress and the President agreed in 1983 to 
limit the spousal benefits reduction to two-thirds of a public 
employee's retirement system benefits. This remedial step, 
however, falls well short of addressing the continuing inequity 
between public and private employees.

Impact of the Offset

    The government pension offset affects government employees 
and retirees in virtually every state, but its impact is most 
acute in 15 states: Alaska, California, Colorado, Connecticut, 
Georgia (certain local governments), Illinois, Louisiana, 
Kentucky (certain local governments), Maine, Massachusetts, 
Missouri, Nevada, Ohio, Rhode Island, and Texas. Nationwide, 
more than one-third of teachers and education employees, and 
more than one-fifth of other public employees, are not covered 
by Social Security. Approximately 243,000 retired federal, 
state, and local government employees have already been 
affected by the Social Security Government Pension Offset 
(GPO). Thousands more stand to be affected in the future.
    Estimates indicate that 9 out of 10 public employees 
affected by the offset lose their entire spousal benefit, even 
though their deceased spouse paid Social Security taxes for 
many years. Moreover, these estimates do not include those 
public employees or retirees who never applied for spousal 
benefits because they were informed they were ineligible.
    The offset has the harshest impact on those who can least 
afford the loss: lower-income women. According to the 
Congressional Budget Office, the government pension offset 
reduces benefits for some 200,000 individuals by more than 
$3,600 a year. Ironically, the loss of these benefits may make 
these women and men eligible for more costly assistance, such 
as food stamps.
    Because the offset applies only to persons receiving public 
pensions, not those receiving private pensions, it creates a 
tremendous inequity in the distribution of Social Security 
benefits. The standard for this narrow class of individuals-
retired public employees who are surviving spouses of retirees 
covered by Social Security-is inconsistent with the overall 
Social Security Act. This imbalance seems particularly unfair 
given that Congress, through ERISA standards and tax code 
provisions, has more direct influence over private employers 
than public employers.

Examples of the Impact of the Offset

    The government pension offset has a significant impact on 
the benefits of retired public employees. For example:
     A disabled former school employee and widow who 
retired in 1986 receives $403 a month from her school pension. 
That income totally offsets a $216 per month Social Security 
survivor's benefit. Her total income is about 70 percent of the 
federal poverty level.
     A retired widow who worked as a school cook 
receives $233 a month from her school pension. Her Social 
Security widow's benefit is reduced by $155 because of the 
automatic offset. Her combined total income is about 76 percent 
of the federal poverty level.

Conclusions and Recommendations

    NEA policy calls for the complete repeal of the government 
pension offset. In the short-term, however, NEA does support 
legislation (H.R. 1217) sponsored by Representative William 
Jefferson (D-LA) that would limit the government pension offset 
and provide a guaranteed minimum benefit. A bipartisan majority 
of Representatives have already cosponsored the Jefferson bill.
    NEA believes it is unconscionable that those who survive 
their spouses should see their retirement incomes reduced by 
thousands of dollars just because they are public employees. 
Teachers and other public employees who have devoted their 
working life to children and public service should not have to 
worry about the security of their retirement plans. We call on 
Congress to stop punishing people whose only transgression is a 
life spent serving the public and to take action this year to 
address the pension offset.
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Statement of Colleen M. Kelley, National President, National Treasury 
Employees Union

    Chairman Shaw, Ranking Member Matsui, Members of the 
Subcommittee:
     My name is Colleen Kelley and I am the National President 
of the National Treasury Employees Union (NTEU). Thank you very 
much for holding this important hearing today on H.R.l2l7, 
legislation to modify the Government Pension Offset (GPO).
     As you may know, NTEU represents over l55,000 federal 
employees across the federal government. Many of our members 
have already felt the effects of the Government Pension Offset. 
Others are not yet aware of the potential impact it may have on 
their retirement security. Sadly, federal retirees often first 
become aware of the existence of the GPO at the time they apply 
for Social Security benefits.
     The GPO reduces or even eliminates the Social Security 
benefit many federal retirees are otherwise eligible for on 
their spouse's earnings record. Under current law, Social 
Security benefits that would normally be due an individual as 
the spouse or widow of a Social Security recipient, are reduced 
by two-thirds of the amount of the government pension.
     More often than not, this offset disproportionately 
affects those who can least afford to forgo this retirement 
income. The effects are particularly devastating to female 
federal employees who are often eligible for only tiny federal 
pensions resulting from interruptions in their careers while 
raising their families or working in lower paid or entry level 
positions for most of their careers. Had these same individuals 
worked in the private sector and collected private pensions, 
stock options or 40lk accounts, they would remain fully 
eligible to collect their spousal Social Security benefits.
     The GPO unfairly penalizes individuals who spend their 
careers in service to their country. It doesn't have to be this 
way. In fact, according to the Social Security Administration, 
enactment of H.R.l2l7 and subsequent relaxation of the GPO, 
would ``increase the long-range actuarial deficit by an amount 
that is estimated to be negligible.'' The increase in the 
actuarial deficit is estimated to be less than one-half of one-
hundredth of one percent (0.005%).
     NTEU has presented testimony to this Committee on the need 
to modify the GPO several times over the past few years, most 
recently in May of l998. At that time, the subject of the 
hearing was H.R.2273, legislation Congressman William Jefferson 
introduced similar to the bill under consideration today. In 
the l05th Congress, that legislation gathered l83 cosponsors.
     Two hundred and forty two (242) members of the House of 
Representatives have cosponsored the bill under consideration 
today, H.R.l2l7. A clear majority has spoken and following 
today's hearing, I urge the Chairman to push for full Committee 
consideration of this legislation as soon as possible.
     H.R.l2l7 is a modest proposal that would not entirely 
eliminate the Government Pension Offset. It seeks to apply the 
GPO only to combined annuity and Social Security spousal 
benefits that exceed $l,200 per month -$l4,400 each year. For 
an elderly widow, that $l,200 each month will make a 
considerable difference. However, I am sure the Chairman would 
agree--even with this slight relaxation in the GPO, $l4,400 in 
annual income is hardly a princely sum.
     To put these calculations in perspective, if an elderly 
widow is eligible for a monthly pension of $600 as a result of 
her federal government service, two-thirds of that amount, or 
$400, must be used to offset the Social Security spouse or 
widow's benefits she may also be eligible for. If, for example, 
she is eligible for a monthly spousal Social Security benefit 
of $500 based on her husband's earnings record, the GPO results 
in her receiving only $l00 in Social Security each month, or a 
total monthly income of $700 instead of the $l,l00 she would 
otherwise be eligible to receive. This is hardly an isolated 
example.
     I urge this Subcommittee to look carefully at the impact 
the GPO has on real people. While our files are overflowing 
with correspondence from individuals severely harmed by the 
GPO, I want to bring the hardships visited upon one NTEU member 
in particular to the Subcommittee's attention. Her case 
presents a particularly cruel application of the GPO.
     This individual has been a seasonal employee at the 
Internal Revenue Service Cincinnati, Ohio Service Center for 
more than 36 years. As a seasonal employee, she works for the 
IRS only during tax season and can, therefore, expect a small 
federal pension at the end of her career. Although she is fully 
eligible to retire, she cannot afford to do so. Her husband, 
six years her senior, is retired and collecting Social Security 
benefits. As long as she continues to work, she is eligible to 
collect her spousal Social Security benefit! Yet, when she 
retires, she will lose that benefit.
     She can expect a federal pension at retirement of between 
$700 and $800 each month based on 36 years of federal service. 
Her spousal Social Security benefit right now is approximately 
$550 each month. When and if she retires, that Social Security 
benefit will be reduced by \2/3\ of her federal pension, or 
approximately $530 of an $800 pension. She will be left with a 
spousal Social Security benefit of about $20 each month. She is 
not entitled to Social Security benefits in her own right.
     Surely, the GPO was never intended to thrust individuals 
such as this one into poverty, however, that is the unintended 
effect of the law. Blindly applying a law such as the 
Government Pension Offset without regard to the economic 
hardship it causes is difficult to justify.
     Thank you again Mr. Chairman for holding this important 
hearing today. I hope that my testimony helps to shed some 
light on the importance of passing H.R.l2l7--a modest amendment 
to the Government Pension Offset. I look forward to working 
with you toward this end.
      

                                


Statement of Susan Nolan, Newburgh, New York

    Impact of Social Security Pension Offset

    1. Housewife and mother of 5 children from Feb., 1954 until 
employed by the Federal Government in Nov., 1977 at 44 years 
old.
    2. Spouse disabled war veteran from the Korean war was 
unable to work after Nov., 1979.
    3. The 23 years I was taking care of my husband and raising 
a family I thought I was covered by my husbands Social 
Security.
    4. Now at 66, widowed for 10 years, I cannot retire as my 
spousal benefit has been eliminated.
    In my opinion the Social Security Pension Offset should be 
eliminated in that I only have 22 years covered under CSRS and 
23 years coverage under my husbands Social Security. After 
working 45 years, I am only entitled to 22 years pension 
coverage. Perhaps another way to correct this is to add the 
years I was dependent on my spouse to my CSRS pension.
      

                                


Statement of Irene Piper, Bedford, Indiana

    I am a retired federal employee. I retired in March 1989 
following approximately 29-years of employment under the Civil 
Service Retirement System (CSRS). I had previously worked 16-
years in private employment under the Social Security 
Retirement System (SS).
    I am receiving approximately $845 per month in my earned 
Civil Service Annuity. However, I receive only $234 per month 
(after Medicare deduction) of my earned SS benefit. This is 
about 50% of the amount that I purchased under the SS system.
    I was not eligible to retire until August 1988 when I was 
60-years of age. If I had been eligible to retire just a few 
years earlier, I would have received my fully earned amount to 
SS as well as my fully earned amount of Civil Service Annuity.
    I understand that my reduced SS benefit is the result of 
the ex post facto Windfall Elimination Provision (WEP) Acts of 
1977 and 1983.
    I became a widow in October of 1990 and, since I am a 
retired federal employee, I was not able to receive my 
husband's SS benefits. I understand that this is the result of 
the equally ex post facto Government Pension Offset (GPO) Act 
of 1983.
    I personally know women who have never worked a day in 
their lives who started receiving 50% of their husband's 
benefits upon reaching age 65 and then 100% of his benefits 
upon the death of their spouse.
    Are we not encouraged to work therefore becoming eligible 
for our retirement benefits? I feel that I am penalized for 
working. I would much rather have enjoyed being at home had I 
but known of the penalty that would befall me for working.
    I recently read about a lady who only worked 6-months 
outside the home. She doesn't qualify for SS benefits on her 
own but is eligible for spousal benefit at age 65. She will get 
50% of her husband's benefit and, upon his death, will receive 
his full SS benefit and his Civil Service Survivor benefit with 
no offset or other penalty.
    It certainly seems unfair to me that I cannot receive my 
fully earned benefits. These most unfair ex post facto Acts 
must be repealed.
    A very big question is: What happened to the Social 
Security tax my husband and I paid? Do I get a refund --or is 
it lost? Does it go to someone who did not work at all? No one 
will give me the answers to these burning questions.
      

                                


Statement of Thomas R. Anderson, Executive Director, School Employees 
Retirement System of Ohio

    Mr. Chairman and members of the Subcommittee, thank you for 
the opportunity to present comments for the record on the 
effect of the Government Pension Offset (GPO).
    My comments reflect the opinion of the School Employees 
Retirement System of Ohio (SERS), which is the statewide 
retirement system for Ohio's non--teaching public school 
employees. SERS members include bus drivers, cafeteria workers, 
custodians, teacher's aides, secretaries, administrative 
support staff, business managers, treasurers, and school board 
members. All SERS members are exempt from Social Security. 
Currently, SERS serves over 110,000 active members and 57,000 
retirees.
    Demographically, seventy-five percent of SERS retirees and 
members are women, many of whom are widows. They enter the 
workforce later in life, commonly to support their families, 
and often after the loss of the family breadwinner. The average 
age at entry into the retirement system is 41. The average SERS 
retirement benefit is $551 per month, which is due to the low 
salaries paid to non-teaching school employees during their 
careers.
    According to testimony provided by Frank Atwater before 
this Subcommittee, Ohio has the second largest number of 
citizens affected by the GPO. According to the Social Security 
Administration, the GPO impacted 36,049 Ohioans as of December 
1999. That figure includes 23,262 spouses and 12,787 widows or 
widowers. Judging by the volume of letters and phone calls SERS 
receives on a daily basis asking for help in changing this 
harmful law, the impact of the GPO on individuals who earn such 
a modest pension can be devastating.
    The following examples demonstrate the negative impact of 
the GPO upon actual SERS retirees:

Retiree #1

    A disabled widow retired on SERS disability retirement in 
1986. She receives $403.41 in monthly disability benefits. She 
was originally entitled to $216.30 per month in Social Security 
as a disabled widow. Due to the GPO, she receives no Social 
Security, as two-thirds of her SERS pension is larger than the 
widow's benefit. Her total pension income remains $403.41 per 
month from SERS.

Retiree #2

    A widow who retired from SERS as a school cleaner in 1989 
with 15 years of service and a final average salary of $6,983 
receives a $214.91 monthly pension from SERS. Her Social 
Security widow's pension was $361 a month, which would have 
provided a combined income of nearly $576. However, due to the 
GPO, her Social Security was reduced by $143, which means her 
total income is just $432 per month.

Retiree #3

    A school employee retired in 1989 with nearly 15 years of 
service and a final average salary of $6,389. She receives a 
gross SERS pension of $241.88, and due to the offset, only $87 
from her husband's Social Security. Her combined monthly income 
is just $328.88. Every year she receives a very modest cost-of-
living raise from SERS, which is then offset from her widow's 
benefit. The retiree writes, ``I don't know what they think 
people live on.''

Retiree #4

    A school secretary retired in 1996 with 15 years of service 
and a final average salary of $27,600. Because she draws 
$734.39 a month from SERS, two-thirds of her pension completely 
offsets her spousal Social Security benefit. ``I think this law 
is terrible,'' she writes. ``I have a hard time living on $700 
a month. Try it. It's hard.''
    For the first three retirees, an unreduced Social Security 
spousal benefit would have provided each with a combined 
monthly income of less than $700, an amount that is still below 
the federal poverty guidelines for an individual.
    The impact of the offset on lower-income retirees is 
exacerbated by two additional factors: the Social Security 
windfall elimination provision (WEP) and the taxation of public 
pensions. As members of the Subcommittee know, the WEP greatly 
reduces the Social Security benefit of a retired public 
employee who also is eligible for a Social Security benefit 
based on his or her own earnings. The following example 
illustrates the unintended consequences of the combined 
application of the GPO and the WEP.

Retiree #5

    This woman retiree lost $80 in her own Social Security 
benefit due to the WEP and $127 due to the GPO against her 
spousal benefit. The combined loss was $207. Her total SERS 
pension was only $196. Thus, her Social Security benefit was 
reduced more than the value of her SERS pension. The retiree 
writes, ``Is it possible for a person to receive less in 
benefits as a result of being a member of a public retirement 
system? I find it hard to believe that this is possible.'' The 
retiree also correctly notes that the impact of the GPO and the 
WEP on public retirees is magnified by the fact that Social 
Security benefits to retirees at this income level are exempt 
from federal income taxation, whereas public pension benefits 
are taxable, for the most part.
    As the five examples illustrate, the GPO results in an 
inequitable distribution of Social Security benefits, and is 
inconsistent with the overall provisions and intent of the 
Social Security Act. The GPO most harshly impacts those lower-
income women whose combined public pensions and unreduced 
Social Security benefits would still fall below the federal 
poverty guidelines. Application of the GPO pushes these 
retirees deeper into poverty, and ironically, renders them 
eligible for federal-and state-sponsored assistance programs, 
merely shifting the liability from Social Security to other 
taxpayer-financed budgets.
    On behalf of SERS' 167,000 members and retirees, and the 
hundreds of thousands of other public pension system members 
and retirees nationally, I urge the members of this 
Subcommittee to review the GPO and recommend that it be 
repealed or modified to mitigate its harsh effects.
    We support any reform that would benefit retirees, but 
specifically, H.R. 1217, introduced by Congressman William J. 
Jefferson. This proposal would eliminate the GPO where combined 
monthly benefits are less than $1200. H.R. 1217 would alleviate 
the most egregious results of the GPO, and would be consistent 
with the goal of improving the economic condition of older 
Americans.
    I would be pleased to provide any further information or 
testimony as members consider reform in this area. Thank you 
for the opportunity to be a voice for so many hard-working 
public school employees in Ohio who have lost, or will lose, 
critical purchasing power in retirement through application of 
the GPO.
      

                                


Statement of Anabel Wagner, Bedford, Indiana

    In 1949, I started working under Social Security (SS). I 
was told I would be paying the SS tax for disability and/or 
retirement benefits. I did not like having this forced on me 
but I was assured it would guarantee a retirement supplement to 
me. I continued under SS for 17\1/2\ years.
    In 1966, I entered the U.S. Civil Service System. During 
the next 26\1/2\ years, I invested 7% of my gross income into 
the Civil Service Retirement System. That investment was fully 
taxed before deposit and my Civil Service Retirement Annuity is 
now also fully taxed.
    I trusted I would receive a small SS check for my 17\1/2\ 
years under that employment which would serve as a supplement 
to my Civil Service annuity. Then the Windfall Elimination 
Provision (WEP) came into being with the Acts of 1977 and 1983. 
I was then informed that in order to collect full SS, I must 
retire from Civil Service by 1985. I was not eligible to retire 
until 1991. Therefore, my SS was cut by two thirds. If I had 
been eligible to retire by 1985, my full SS was quoted to be 
approximately $397. Since June 1, 1996 Medicare has been 
withheld leaving me a SS check of $138 per month.
    I am now 68-years of age. My Civil Service Annuity is now 
$707 per month. According to all statistics, that income is 
below the poverty level.
    To sum it up, I worked 44-years and the sum of my SS 
benefit and my Civil Service Annuity amounts to only $845 per 
month after Medicare is withheld.
    I have recently had major surgery for cancer. Then I had a 
reoccurrence which required both radiation and chemotherapy. I 
felt I was either being forced into selling my home or seeking 
employment which I have done on a part time basis and for a 
minimum wage. I am again paying the full SS tax on this minimum 
wage, yet I draw only about one third of my SS.
    This pension offset reduction of SS benefits does not apply 
to those receiving a pension from a private company. Regardless 
of how high their pension might be. It only applies to those of 
us who have invested in the Civil Service Annuity. That is most 
unfair.
    I personally know of several widows who are drawing more 
Social Security than my combined SS and Civil Service Annuity 
and yet have never worked a day in their lives!
    I am sure anyone can see these things as an injustice. I 
feel that anyone retired from Civil Service and their total 
retirement being below the poverty level should be entitled to 
their full Social Security. It was quite unfair when the rules 
were changed and a person fell into a situation they could not 
help and were too old to turn their life around and start over.