Ohio public employees have a right to be perplexed about their Social Security benefits. The rules for collecting STRS, SERS and OPERS and Social Security can be confusing and intimidating. It doesn’t help that there’s a lot of really bad information on the internet!
The good news is, the rules can made understandable so you can use them to your advantage in planning your retirement strategy.
The Basics of Social Security in Ohio
If you work in local or state government in Ohio, there are two rules that could affect your ability to claim 100% of your Social Security benefit. The rules are called the “Windfall Elimination Provision (WEP)” and the “Government Pension Offset (GPO).”
These two provisions reduce (or completely eliminate) benefits for individuals who worked at a job where they:
A) did not pay Social Security tax
B) earned a pension from that work
For example, if you work as a teacher in Ohio you will not pay Social Security taxes. However, that work alone is not enough to subject you to the WEP or GPO provisions. You must also meet the service requirements and qualify for a pension to be affected by these hefty benefit reductions.
Where this gets especially complex is if you’ve paid into the Social Security system for enough quarters to qualify for a benefit before, after or during your career in local or state government. I’ve seen this happen numerous times and for a multitude of reasons. For example, firefighters often work 48 hour shifts and then work another job in their time off (and pay SS tax on the side job). Many teachers come to the profession as a later career after working at another job for several years.
So how do you know what to expect if you qualify for both Social Security and a public pension? Don’t expect it to be on your Social Security statement! Any reduction in benefits thanks to your public servant’s retirement pension is NOT reflected in the benefits estimate section of your statement. But if you know the rules on the WEP and the GPO it doesn’t take long to calculate what your benefits will be.
From a high level, it’s critical to understand that the WEP rule only applies to individuals who are entitled to a Social Security benefit based on their own work history and have a pension from work where they did not pay Social Security tax. Meanwhile, the GPO rule only applies to individuals who are entitled to a Social Security benefit as a survivor or spouse and have a pension from work in which they did not pay Social Security tax.
Here’s a look at how each rule would impact your benefit.
Windfall Elimination Provision
The Windfall Elimination Provision (WEP) is simply an alternate method of calculating your Social Security benefit if you also have a pension from work where no Social Security taxes were paid. This alternate calculation produces a lower monthly Social Security benefit amount.
Here are the two “must-know” items on the WEP:
- The maximum Social Security reduction will never be greater than one half of your pension amount. This is capped at a monthly reduction of $428 (for 2016).
- If you have more than 20 years of “substantial covered earnings” (where you paid Social Security tax), the effect of the WEP begins to lessen. At 30 years of substantial covered earnings, the WEP will not affect you.
Source: Devin Carroll, Data: Social Security Administration
This phase-out of the WEP reduction offers a retirement income planning opportunity if you have worked at a job where you paid Social Security taxes. For example, if you worked as an accountant for 20 years before you began your public service, you may be able to do enough part-time work between now and when you retire to completely eliminate the monthly reduction.
Obviously, not everyone has the option of accumulating enough years to wipe out the big monthly WEP reduction. But for those who do, or can get close, it’s certainly worth considering. For a 20 year retirement period, it could mean $100,000 more in benefit payments.
Government Pension Offset
The GPO is fairly simple to understand. If you meet both of requirements for the GPO – you are entitled to a Social Security benefit as a survivor or spouse and have a pension from work where you did not pay Social Security tax – your Social Security survivor or spousal benefit will be reduced by an amount equal to 2/3 of your teacher’s pension.
As an example, let’s say Nicole worked for 30 years as an Ohio schoolteacher. Her husband worked at a local manufacturing plant. Upon retirement, she began receiving her Ohio Teachers pension of $3,000 per month. Her husband retired from his job at the same time and filed for his Social Security benefits of $2,300 per month. Sadly, he passed away only four years later.
After his death, Nicole learned that she would not be eligible to receive a normal Social Security survivor’s benefit. Thanks to the GPO her survivor’s benefit was reduced to $300 per month. Here’s the math:
Source: Devin Carroll
Some would say that this reduction is not fair. I think they have a legitimate point. Why? The GPO only applies because of Nicole’s profession! This is effectively a penalty for her choosing to be a school teacher. If she had worked as an accountant instead of working in education, she would have been eligible to receive the full $2,300 per month in Social Security Survivor’s benefits.
If You ONLY Qualify for an Ohio Public Employees Pension and Have NEVER Paid Social Security Tax
From time to time I’ll have a public servant ask me, “If I’ve never paid into Social Security, why would I expect a benefit?”
There are two ways that you could look at this.
- You could take that approach that since you never paid into Social Security, you shouldn’t expect a benefit. This is a straightforward view that many people share.
- You could take the approach that the same rules should apply to everyone. For example, if you had chosen to stay at home as the household manager, you would not have paid into the Social Security system. However, you would be eligible for spousal and survivor benefits. Meanwhile, Ohio public servants who never pay into Social Security won’t receive any benefits.
The Importance of Planning Ahead
These intricate Social Security regulations and how differently they may affect your retirement income make it critical that you plan ahead and prepare. Before you make your elections on your OPERS pension, you must consider how your monthly cash flow may change with a spouse’s death. For example, if your spouse passes away and their Social Security survivors benefit stops because of the GPO, how will that impact your monthly retirement income? Would you still be able to financially survive?
As a public servant, you have plenty to keep up with and these complex rules on Social Security don’t make it any easier. But don’t let it get to you. Instead, get informed so you can make best decisions for you and your family. You’ll likely hear conflicting information along the way but don’t give up! You can find the information you need to make an informed filing decision.
If you need some help along the way, I love Social Security questions! I’ll answer them privately as time allows, but if I think the answer will benefit a wide audience, I’ll also publish them on my blog. Don’t worry, I’ll change up enough personal details so you’ll stay unknown. Send your questions to firstname.lastname@example.org.
If you need individual and specific help, I’m always available for a consultation.
As a final resource, read my article on other ways to find answers to your Social Security questions.