Social Security Administration: Revision to the Government	 
Pension Offset Exemption Should Be Reconsidered (15-AUG-02,	 
GAO-02-950).							 
                                                                 
Social Security benefits are payable to the spouses of retired,  
disabled, or deceased workers. The benefits often provide income 
to wives and husbands who have little or no Social Security	 
benefits of their own. Until 1977, workers receiving pensions	 
from government positions not covered by Social Security could	 
receive their full pension benefit and their full spousal	 
benefits as if they were nonworking spouses. Since then, a	 
government pension offset has been in effect to equalize the	 
treatment of workers covered by Social Security and those with	 
noncovered government benefits. This report was prompted by a	 
referral to GAO's Fraudnet that questioned a practice in which	 
individuals in Texas were transferring to Social Security-covered
positions for one day to avoid the offset. GAO found no central  
data on the use of the offset exemption by individuals, and time 
constraints did not permit in-depth audit work on the 2,300 state
and local government retirement plans. However, GAO did establish
that, as of June 2002, more than 4,800 persons in Texas and	 
Georgia worked for brief periods in jobs covered by Social	 
Security to qualify for the "last-day exemption." GAO estimates  
that the long-term Social Security payments to these individuals 
could be as high as $450 million. Such abuses of the offset	 
exemption could be prevented by (1) changing the last-day	 
provision to a longer minimum time period or (2) using a	 
proportional approach based on the number of working years as a  
government employee spent in covered and noncovered employment to
determine the extent to which the government pension offset	 
applies.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-950 					        
    ACCNO:   A04502						        
  TITLE:     Social Security Administration: Revision to the	      
Government Pension Offset Exemption Should Be Reconsidered	 
     DATE:   08/15/2002 
  SUBJECT:   Social security benefits				 
	     Government retirement benefits			 
	     Workers compensation				 
	     Federal aid programs				 
	     Federal legislation				 
	     Government Pension Offset Exemption		 
	     Social Security Program				 
	     GAO FraudNET					 
	     Texas						 
	     Georgia						 
	     Social Security Trust Fund 			 
	     Civil Service Retirement System			 
	     Federal Employees Retirement System		 

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GAO-02-950

Report to the Chairman, Subcommittee on Social Security, Committee on Ways
and Means, House of Representatives

United States General Accounting Office

GAO

August 2002 SOCIAL SECURITY ADMINISTRATION

Revision to the Government Pension Offset Exemption Should Be Considered

GAO- 02- 950

Page i GAO- 02- 950 Government Pension Offset Exemption Letter 1

Matter for Congressional Consideration 4 Agency Comments 4

Appendix 6

Abbreviations

CSRS Civil Service Retirement System FERS Federal Employees Retirement
System GPO Government Pension Offset SSA Social Security Administration
Contents

Page 1 GAO- 02- 950 Government Pension Offset Exemption

August 15, 2002 The Honorable E. Clay Shaw Chairman Subcommittee on Social
Security Committee on Ways and Means House of Representatives

Dear Mr. Chairman: This report addresses your request for information on
the Government Pension Offset (GPO) exemption. Generally, Social Security
benefits are payable to the spouses of retired, disabled, or deceased
workers covered by Social Security. These benefits often provide income to
wives and husbands who have little or no Social Security benefits of their
own. If both spouses worked in positions covered by Social Security, each
may not receive both the benefits earned as a worker and the full spousal
benefit; rather the worker receives the higher amount of the two. However,
until 1977, workers receiving pensions from government positions not
covered by Social Security could receive their full pension benefit and
their full Social Security spousal benefits as if they were nonworking
spouses. At that time, legislation was enacted 1 creating a GPO, to
equalize the treatment of workers covered by Social Security and those
with noncovered government pensions. The GPO prevented workers from
receiving a full spousal benefit on top of a pension earned from
noncovered government employment. 2 However, the law provides an exemption
from the GPO if an individual*s last day of state/ local employment is in
a position that is covered by both Social Security and the state/ local
government*s pension system. 3 In these cases, the GPO will not be applied
to the Social Security spousal benefit. The intent of the *lastday*
exemption is unclear in the legislation.

1 Public Law 95- 216, Section 334 (1977). 2 Currently, the reduction in
spousal benefits is two- thirds of the amount of their public pension. 3
Exemption due to *The Last Day of Employment* Covered Under Social
Security * State/ Local or Military Service Pensions (SSA*s Program
Operations Manual System, GN 02608.102).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 950 Government Pension Offset Exemption

Specifically, you asked us to (1) assess the extent to which individuals
retiring from jobs not covered by Social Security may be transferring
briefly to jobs covered by Social Security in order to avoid the GPO, (2)
estimate the impact of such transfers on the Social Security Trust Fund,
and (3) identify options for addressing potential abuses of the lastday
exemption. On July 9, 2002, we briefed your staff on the results of our
work. This report formally conveys the final version of the document used
at that briefing.

This review originated from a referral to GAO*s FraudNET questioning a
practice in Texas where individuals were transferring to Social
Securitycovered positions for one- day to avoid the GPO. 4 To perform our
work we first reviewed the GPO*s legislative history and government
reports documenting the purpose of the offset and the Social Security
Administration*s (SSA) policies and procedures for administering it. There
is no central data on use of the GPO exemption by individuals and time
constraints did not permit in- depth audit work on the approximately 2,300
state and local government retirement plans nationwide. Therefore, to
assess the extent of these job transfers, we performed limited work with
associations, researchers, and retirement system officials in 28 states.
We selected these states either because they were authorized to operate
retirement systems with both covered and noncovered positions or because
their state or local government plans had a mix of covered and noncovered
positions, thus offering the greatest potential for use of the last- day
exemption. We also interviewed and obtained documentation from SSA
headquarters and regional officials; and other federal officials
knowledgeable about the subject matter, such as the Congressional Budget
Office and the Internal Revenue Service. Finally, we visited and performed
audit work in Texas and Georgia, two of the states where we identified use
of the last- day exemption. We conducted our work from April through June
2002 in accordance with generally accepted government auditing standards.

Given our time constraints we could not definitively confirm that this
practice is occurring in other states. However, we were able to establish
that in Texas and Georgia 4,819 individuals as of June 2002 performed work
in Social Security covered positions for short periods to qualify for

4 FraudNET is a service maintained by GAO*s Office of Special
Investigations. GAO subsequently determined that use of the GPO last- day
exemption is permitted under the law.

Page 3 GAO- 02- 950 Government Pension Offset Exemption

the GPO last- day exemption. 5 Texas officials reported 4,795 individuals;
Georgia officials reported an estimated 24 cases. SSA officials also
acknowledged that use of the exemption might be possible in some of the
approximately 2,300 state and local government retirement plans in other
states where such plans contain Social Security covered and noncovered
positions. In Texas, teachers typically worked a single day in a
nonteaching position covered by Social Security, such as a clerical or
janitorial position. Based on an hourly wage of about $6, these
individuals in Texas typically paid a total of $3 in Social Security
taxes. In Georgia, teachers generally agreed to work for approximately one
year in another teaching position in a school district covered by Social
Security. Officials in both states indicated that use of the exemption
would likely continue to grow as awareness increases and it becomes part
of individual*s retirement planning.

For the cases we identified in Texas and Georgia, increased long- term
benefit payments from the Social Security Trust Fund could be about $450
million. 6 This figure was calculated by multiplying the number of lastday
cases reported in Texas and Georgia (4,819) by SSA data on average annual
offset amount ($ 4,800) and the average life expectancy upon receipt of
spousal benefits (19.4 years). These estimated payments would likely
increase as use of the exemption grows.

Options for addressing potential abuses of the GPO exemption include (1)
changing the last day provision to a longer minimum time period or (2)
using a proportional approach based on the number of working years as a
government employee spent in covered and noncovered employment for
determining the extent to which the GPO applies. The first option would
require only small changes to administer and has precedent in 1987
legislation that required federal employees who transferred from the Civil
Service Retirement System (CSRS) to the Federal Employees Retirement
System (FERS) to remain in FERS for 5 years before retirement to be exempt
from the GPO. The second option may represent a more calibrated approach
to determining benefits for individuals who have made

5 Technically, individuals could have used this exemption since its
passage in 1977. However, nearly all of the transfers we identified in
Texas and Georgia occurred in the last several years.

6 This estimate may over/ under estimate costs due to the use of averages,
the exclusion of inflation/ cost- of- living/ net present value
adjustments, lost investment earnings by the Trust Funds, and other
factors that may affect the receipt of spousal benefits.

Page 4 GAO- 02- 950 Government Pension Offset Exemption

contributions to the Social Security system for an extended period of
their working years. However, SSA has noted that a proportional approach
would take time to design and would be administratively burdensome to
implement, given the lack of complete and reliable data on noncovered
Social Security employment.

The GPO *loophole* raises fairness and equity concerns for those receiving
a Social Security pension and are currently subject to an offset of their
spousal Social Security benefits. In the states we visited, individuals
with a relatively small investment of work time and only minimal Social
Security contributions can gain access to potentially many years of full
Social Security spousal benefits by using the GPO exemption. Also,
providing full spousal benefits to individuals who receive government
pensions and made only nominal contributions to the Social Security system
runs counter to the nation*s efforts to address the solvency and
sustainability of the Social Security program. Finally, the last- day
exemption could have a more significant impact if the practice grows and
begins to be adopted by other states and localities.

Considering the potential for abuse of the last- day exemption and the
likelihood for its increased use, we believe timely action is needed. We
are making a matter for congressional consideration that the last- day GPO
exemption be revised to provide for a longer minimum time period. This
action would provide an immediate *fix* to address possible abuses of the
GPO exemption identified in our review.

We provided a draft of this briefing to SSA officials for comment on July
3, 2002. On July 8, 2002, SSA provided oral comments on our draft
briefing. SSA generally agreed with our briefing*s findings and provided
several technical comments, which we incorporated where appropriate. We
also provided a draft of this report to the Commissioner of Social
Security for comment. On August 7, 2002, we obtained written comments on
our draft report from SSA. SSA generally agreed with our report*s findings
and provided several technical comments, which we incorporated where
appropriate.

We are sending copies of this report to relevant congressional committees
and other interested parties and will make copies available to others upon
request. In addition, the report will be available at no charge on the GAO
Web site at http:// www. gao. gov. Matter for

Congressional Consideration

Agency Comments

Page 5 GAO- 02- 950 Government Pension Offset Exemption

If you or your staff have any questions about this report, please contact
me on (202) 512- 7215 or Daniel Bertoni on (202) 512- 5988. Patricia M.
Bundy, Jamila L. Jones, Daniel A. Schwimer, Anthony J. Wysocki, and Jill
D. Yost also made key contributions to this report.

Sincerely yours, Barbara D. Bovbjerg Director, Education, Workforce,

and Income Security Issues

Appendix Page 6 GAO- 02- 950 Government Pension Offset Exemption

Appendix

1

Briefing for Committee on Ways and Means, Subcommittee on Social Security
*Last Day of Employment

Exemption* to the Government Pension Offset (GPO)

Appendix Page 7 GAO- 02- 950 Government Pension Offset Exemption

2

* Background Objectives  Scope and Methodology Summary of Results 
Findings by Objective  Concluding Observations  Matter for Congressional
Consideration

Overview

Appendix Page 8 GAO- 02- 950 Government Pension Offset Exemption

3

Background: Social Security Coverage

 The Social Security Act requires that most workers be covered by Social
Security retirement benefits. Workers contribute to the program via wage
deductions. State and local government workers were originally excluded
from Social Security because many were already covered by their state or
local government*s pension plan.

 Starting in the 1950s, state and local governments had the option of
selecting Social Security coverage for their employees or maintaining
noncovered pension plans. In 1983, state and local governments in the
Social Security system were prohibited by law from opting out of it.

 There are about 2, 300 separate state and local retirement plans
nationwide. About one- third of the workers in these plans are not covered
by Social Security. Social Security coverage for state and local
government employees varies within states.

Appendix Page 9 GAO- 02- 950 Government Pension Offset Exemption

4

Background: Government Pension Offset (GPO)

 Generally, Social Security benefits are payable to the spouses of
retired, disabled, or deceased workers covered by Social Security.

 If both spouses worked in positions covered by Social Security, each may
not receive both the benefits earned as a worker and the full spousal
benefit; rather the worker receives the higher amount of the two.

 Until 1977, workers receiving pensions from government positions not
covered by Social Security could receive their full pension benefit and
their full Social Security spousal benefits, as if they were nonworking
spouses. In 1977, 1 legislation created a Government Pension Offset (GPO)
to equalize the treatment of individuals covered by Social Security and
those with noncovered government pensions. GPO prevented workers from
receiving a full spousal benefit on top of a pension earned from
noncovered government employment.

1 Public Law 95- 216, Section 334 (1977). Currently, the reduction in
spousal benefits is two- thirds of the amount of their government pension.

Appendix Page 10 GAO- 02- 950 Government Pension Offset Exemption

5

Background: GPO *Last Day of Employment* Exemption

 The GPO does not apply if an individual*s last- day of state/ local
employment is in a position covered by both Social Security and the state/
local government's pension system. 2

 Thus, individuals retiring from state/ local government jobs not covered
by Social Security may transfer briefly to another state/ local government
job covered by Social Security to avoid the GPO* provided that the
subsequent job is covered by the same state/ local government pension
plan.

 The intent of the last- day exemption is unclear. ______

2 Exemption due to *The Last Day of Employment* Covered Under Social
Security * State/ Local or Military Service Pensions (SSA*s Program
Operations Manual System, GN 02608.102)

Appendix Page 11 GAO- 02- 950 Government Pension Offset Exemption

6

Background: Hypothetical Example of Worker Transfers to Use Exemption

Worker Movement across Counties in State with Mixed Social Security
Coverage

Note: Arrows represent movement of individuals who belong to a statewide
retirement plan from non- Social Security- covered counties (not shaded)
to covered counties (shaded) to use the last- day GPO exemption.

Appendix Page 12 GAO- 02- 950 Government Pension Offset Exemption

7

Objectives

 Assess the extent to which individuals retiring from jobs not covered by
Social Security may be transferring briefly to jobs covered by Social
Security to avoid the government pension offset (GPO).

 Estimate the impact of such transfers on the Social Security Trust Fund.

 Identify options for addressing potential abuses of the lastday
exemption.

Appendix Page 13 GAO- 02- 950 Government Pension Offset Exemption

8

Scope and Methodology

 Review originated from a referral to GAO*s FraudNET questioning a
practice in Texas where individuals were switching to Social Security-
covered positions for 1- day to avoid the GPO. 3

 Reviewed GPO's legislative history, government reports, and SSA*s
policies and procedures on the administration of the GPO and the GPO
exemption.

 There is no central data on use of the GPO exemption by individuals and
time constraints did not permit in- depth audit work on the approximately
2,300 state and local retirement plans nationwide.

 Thus, to assess the extent of these job transfers we performed limited
work with associations, researchers, and retirement system officials in 28
states. States selected either because they were authorized to operate
retirement systems with both covered and noncovered positions or their
state/ local government plans had a mix of covered and noncovered
positions, offering the greatest potential for use of the last- day
exemption.

 Interviewed and obtained documentation from from SSA headquarters and
regional officials; and other federal officials such as the Congressional
Budget Office and the Internal Revenue Service.

 Visited and performed audit work in Texas and Georgia, two of the states
where we identified use of the last- day exemption.

3 FraudNET is a service maintained by GAO*s Office of Special
Investigations. GAO determined that use of the GPO last- day exemption is
permitted under the law. ___________________

Appendix Page 14 GAO- 02- 950 Government Pension Offset Exemption

9

Summary of Results

 GPO exemption is used in two states, where use is growing.  Given our
time constraints we could not definitively confirm that this practice is
occurring in other states.  SSA does not track or maintain data on use of
the GPO exemption.  Texas and Georgia officials reported 4, 819 cases as
of June 2002 4 (Texas* 4, 795; Georgia* 24).

However, officials in both states indicated use of the exemption would
likely continue to grow as awareness of it increases.

 SSA officials acknowledged that exemption use might be possible in some
of the approximately 2,300 state and local government retirement plans in
other states where such plans contain Social Security covered and
noncovered positions. There is little awareness of the exemption among
state/ local pension plan administrators and experts in the public pension
field.

 Retirement plan officials in other states we contacted noted their plans
may permit use of exemption because of the structure of their plans, but
did not report actual cases.

 Cases in Texas and Georgia could result in increased long- term benefit
payments from the Trust Fund of about $450 million.

 Texas accounted for about 99. 5 percent of this estimate; Georgia about
0.5 percent.  Transfers reported by Texas and Georgia officials in 2002
accounted for most of this amount (many

schools began only recently to offer such work, and did not maintain
complete records for prior years).  Estimated long- term impact likely to
grow as use of the exemption grows.  Cost estimates may over/ under
estimate costs due to the use of averages, the exclusion of inflation/
costof- living/ net present value adjustments, and other factors that may
affect the receipt of spousal benefits.

 Options to address potential abuses.  Change the last- day provision to
a longer minimum time period.  Use a proportional approach to determine
whether GPO applies.

4 Technically, individuals could have used this exemption since its
passage in 1977. However, nearly all of the transfers we identified in
Texas and Georgia occurred in the last several years.

Appendix Page 15 GAO- 02- 950 Government Pension Offset Exemption

10

Extent of Transfers to Avoid the GPO: Texas Summary

 Officials reported that 4,795 individuals at 31 schools have used or
plan to use last- day employment to take advantage of the GPO exemption.

 In 2002, one fourth (3,521) of all Texas public education retirees took
advantage of this exemption.

 According to information from school officials and associations, use of
the exemption has increased since 1990 (the earliest use reported to us).

 For example, officials in one school district reported rapid growth*
from one worker in 1996 to 1,050 in 2002.  A school district that began
offering last- day employment this year has

received over 1,400 applications from individuals seeking to use the
exemption.

Appendix Page 16 GAO- 02- 950 Government Pension Offset Exemption

11

Extent of Transfers to Avoid the GPO: Texas Summary

 According to school officials and our analysis of exemption use and
trends in Texas teacher retirements, use of the exemption is likely to
grow further.

 Retirements have increased in past years and are likely to grow further
(about 14,000 in 2002; up from 12,000 in 2001, and 10,000 in 2000).

 Availability/ use of the exemption is being publicized by teaching
associations and groups (Web sites, newspapers, seminars, etc.) and by
word- of- mouth. For example, one website we identified lists the names
and telephone numbers of school officials in counties covered by Social
Security and how to contact those officials for such work.

Use o f the exemption is becoming part of individuals* retirement
planning. For example, at one university we visited, officials are
scheduling work days for imminent retirees through 2005.

 Individuals are willing to travel to take these jobs. Officials in one
school district noted that a teacher traveled 800 miles to use the lastday
provision.

Appendix Page 17 GAO- 02- 950 Government Pension Offset Exemption

12

Extent of Transfers to Avoid the GPO: Texas Summary

 Teachers worked under a variety of arrangements to use the GPO
exemption:

 In most schools, employees typically work a single day in a job covered
by Social Security.

 Nearly all positions reported by officials were non- teaching jobs,
including clerical, food service, or maintenance.

 Most of these employees are paid about $6 per hour. At this rate, the
Social Security taxes deducted from their pay would total about $3.

 Some schools charge a processing fee (ranging from $100-$ 500) to hire
these workers. Fees are a significant source of revenue* this year one
school district collected over $283,000 in fees.

Appendix Page 18 GAO- 02- 950 Government Pension Offset Exemption

13

Extent of Transfers to Avoid the GPO: Excerpts from Texas Web sites

Excerpt about the GPO exemption on a teaching association's Web site:

*[ We have] received many inquiries about the loophole that allows some
school employees to receive the full amount of both their TRS pension and
their Social Security benefit. Most Texas school employees do not
participate in Social Security, so according to federal law, the amount of
any Social Security benefit to which they are entitled is reduced or
eliminated by the amount of their TRS benefit. * [We have] become aware of
some school districts that participate in both TRS and Social Security
facilitating the use of this loophole by agreeing to hire employees for
one day to allow the employee to become exempt from the Social Security
offset. A list of Texas school districts participating in Social Security
is available on [our] website.*

Excerpt about the GPO exemption on a retirement/ financial planning Web
site:

*You may be eligible to receive both teacher retirement and social
security benefits even if you have never worked a day under social
security. As little as one day of work in a dual system (Teacher
Retirement System and Social Security System) will give you half of your
spouse*s social security benefits when you reach retirement age.   When
you reach retirement, you will receive 1/ 2 of your spouse's benefit and/
or the widow( er) benefit for the rest of your life.   This could mean
$150, 000 or more in benefits throughout your lifetime.   Not too bad for
as little as one day of work under a dual system!*

Appendix Page 19 GAO- 02- 950 Government Pension Offset Exemption

14

Extent of Transfers to Avoid the GPO: Georgia Summary

 Officials in one district reported that 24 individuals have used or plan
to use employment to take advantage of the GPO exemption.

 Officials expect use of the exemption to increase as awareness of it
grows.

 Teachers typically transfer to another teaching position for about one
year in a school district covered by Social Security.

Appendix Page 20 GAO- 02- 950 Government Pension Offset Exemption

15

Extent of Transfers to Avoid the GPO: Georgia Summary

 Our review and analysis of information provided by officials indicate
that the environment is conducive to such transfers.

 A teacher shortage outweighs the risk of teachers leaving after one
year. Fast- growing school systems reported they needed to hire teachers
even if they only intended to teach for one year.

 Some schools have had teachers leave shortly after being hired. For
example, in one district, a teacher signed a one- year contract to teach
but left after 61 days.

 In some school employment applications we reviewed, individuals
explicitly stated their desire to work in a county covered by Social
Security to obtain full Social Security spousal benefits.

Appendix Page 21 GAO- 02- 950 Government Pension Offset Exemption

16

Extent of Transfers to Avoid the GPO: Where Exemption Could Be Used

 According to state/ local retirement plan officials in other states,
transfers to avoid the GPO are possible because the structure of their
plans allows covered and noncovered Social Security positions. Officials
did not report any actual cases, however.

 In a midwestern state with a retirement plan for all state government
employees, it is possible for law enforcement personnel (noncovered) to
take a covered job in the state insurance bureau (covered) just before
retiring to avoid the GPO.  In a southern state with a statewide
retirement plan for school employees, teachers and other school
professionals (noncovered), can potentially transfer to a job in the
school cafeteria (covered) to avoid the GPO.  In a north central state, a
retirement system official reported hearing of a few cases where teachers
had taken advantage of the exemption by transferring to jobs in other
school districts covered by Social Security.  In a western state with a
statewide retirement plan, workers could move from a noncovered position
in a government agency to a covered position in another agency to use the
GPO exemption.

 SSA officials acknowledged that exemption use might be possible in some
of the approximately 2,300 state and local government retirement plans in
other states where such plans contain Social Security covered and
noncovered positions.

 SSA does not maintain data with respect to last- day transfers in
noncovered retirement plans. Time constraints did not permit us to review
the approximately 2, 300 state/ local retirement plans to assess the
extent of use of the last- day exemption.

Appendix Page 22 GAO- 02- 950 Government Pension Offset Exemption

17

Impact of Employee Transfers on Social Security Trust Fund

 The individuals reported to have used the exemption by Texas and Georgia
officials could result in increased long- term benefit payments from the
Trust Fund of about $450 million.

 Calculated by multiplying the number of last- day cases reported by
Texas and Georgia officials (4, 819) by SSA data on average annual offset
($ 4,800) and life expectancy upon receipt of spousal benefits (19. 4
years). Estimates may over/ under estimate costs due to the use of
averages, the exclusion of inflation/ cost- of- living/ net present value
adjustments, lost investment earnings by the Trust Funds, and other
factors that may affect the receipt of spousal benefits.

 Estimated potential long- term fiscal impact varied by state.  Texas *
4,795 cases accounted for about 99.5 percent of our estimate.  Georgia *
24 cases accounted for about 0.5 percent of our estimate.

 Employee transfers reported in 2002 accounted for most of this amount. 
Many schools officials told us that they did not maintain complete records
for prior years

and/ or began only recently to offer such work.  Fiscal impact may
increase over time if use of the exemption becomes more

institutionalized.

Appendix Page 23 GAO- 02- 950 Government Pension Offset Exemption

18

Options for Addressing Potential Abuses

 Change GPO last- day exemption provision to a longer minimum time
period.

 For example, 1987 legislation required that federal employees who
transferred from the Civil Service Retirement System (CSRS) to the Federal
Employees Retirement System (FERS) must remain in FERS for 5 years before
retirement to be exempt from the GPO. * We found that most of the jobs in
Texas last for about one day, so extending

the time period might eliminate many of the exemption users in Texas. 
The use of a longer minimum time period would be less burdensome than
other

methods for SSA to administer.  Use a proportional approach for
determining the extent to which the GPO

applies.  For example, employees who have spent a certain proportion of
their working

career as a government employee in a position covered by Social Security
could be exempt from the GPO.

 On the whole, this might be a more calibrated approach to determining
benefits for individuals who have made contributions to the Social
Security system for an extended period of their working years.

 SSA has noted that using a proportional approach would take time to
design and would be administratively burdensome to implement, given the
lack of complete and reliable data on noncovered Social Security
employment.

Appendix Page 24 GAO- 02- 950 Government Pension Offset Exemption

19

Concluding Observations

 The GPO *loophole* raises fairness and equity concerns.  Individuals
receiving government pensions can potentially receive full spousal Social

Security benefits for their retirement lifetime, while those receiving a
Social Security pension and a spousal benefit will have the spousal
benefit reduced.

 Based on the number of people reported to be using the loophole in Texas
and Georgia this year, the Trust Fund liability is increasing by hundreds
of millions of dollars, a figure which could grow more in coming years.

 Although the fiscal impact we identified represents a relatively small
percentage of the Social Security Trust Fund, these costs could increase
significantly if the practice grows and begins to be adopted by other
states and localities.

 Use of the loophole has grown in localities we visited and increasing
awareness is making it part of individuals* retirement planning.

 Our analysis suggests that use of the exemption may grow further as the
aging baby- boom generation begins to retire in large numbers.

 The GPO loophole runs counter to the nation*s efforts to address the
solvency and sustainability of the Social Security program.

* Thus, the exemption appears to provide a loophole for only a select
group of individuals, awarding benefits to workers who have paid very
little to Social Security and already receive public pension benefits.

Appendix Page 25 GAO- 02- 950 Government Pension Offset Exemption (130182)

20

Matter for Congressional Consideration

 To address potential abuses of the GPO*s last- day exemption, the
Congress should consider revising the Social Security Act to extend the
last- day provision to provide for a longer minimum time period.

 This revision would be consistent with 1987 legislation that addressed
the GPO exemption*s applicability to federal employees under the Federal
Employees Retirement System and the Civil Service Retirement System.

 Timely action would provide an immediate *fix* to possible abuses of the
GPO exemption.

The General Accounting Office, the investigative arm of Congress, exists
to support Congress in meeting its constitutional responsibilities and to
help improve the performance and accountability of the federal government
for the American people. GAO examines the use of public funds; evaluates
federal programs and policies; and provides analyses, recommendations, and
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