Changes in Social Security to impact public employers and employees: new legislation designed to prevent fraud and abuse in the Social Security program has important implications for government employers and employees.

• Author: Berger, Barrie Tabin
• Position: Federal Focus

On March 2, President Bush signed into law the Social Security Protection Act of 2004 (Public Law 108-203). While the legislation is primarily intended to reduce fraud and abuse in the Social Security and Supplemental Security Income programs, it impacts state and local government employers and their employees in several ways. Specifically, the new law closes the Government Pension Offset loophole; requires public employers to disclose to newly hired employees that they are earning retirement benefits not covered by Social Security; and allows Louisiana and Kentucky the option to provide a divided retirement system.

As the legislation was being considered, public sector organizations met with Congressional staff to limit any new disclosure requirements that would impose financial and administrative burdens on state and local employers, public pension plans, and employees. While they succeeded in eliminating some of the more burdensome mandates included in earlier versions of the legislation, the final version does impose some new disclosure requirements on state and local employers. The Social Security Administration will soon issue regulations for the implementation of the new disclosure requirements. Working in concert with other state and local employers, national organizations, pension system administrators, and employee unions, GFOA will closely review these regulations to ensure that they are not overly burdensome or costly to public employers, or biased in their explanation of uncovered employment.

This article summarizes the newly enacted legislation and discusses its impact on public employers and employees. It is important to note that the legislation does not require that all public employees participate in Social Security. It does, however, make some important changes to existing law. These changes are discussed below.

THE GOVERNMENT PENSION OFFSET

The GPO formula reduces by two-thirds the spousal and survivor Social Security benefits paid to most retired public employees for employment not covered by Social Security. For example, if you receive a monthly pension benefit of $600, two-thirds of that amount ($400) must be deducted from your spousal/survivor Social Security benefit. Thus, if you are eligible for a $500 spouse's, widow's, or widower's benefit from Social Security, you will instead receive $100 per month ($500-$400 = $100). You will also receive your monthly pension benefit of $600, which will not be affected.

Prior...