• Chris Stein, CFP®

Pension Survivor Benefits Reducing Social Security Benefit

A reader from Massachusetts looks for clarification on whether survivorship benefits from his spouse's pension will reduce his Social Security benefit.


My wife is 69. She is a state worker who did not contribute to Social Security while working in the public sector. However, she will get a pension. I am also 69 and will submit my claim for Social Security benefits when I turn 70. Suppose my wife predeceases me, and I am named the spousal beneficiary on her pension plan. Will my Social Security benefit be reduced by the Government Pension Offset (GPO) because I receive her pension benefits?


This is an excellent question because it is very frequently misunderstood. And the misunderstanding is usually worse than reality.


The simple answer is "no." You will not be affected by the Government Pension Offset, or GPO, because you were not a participant in the non-covered pension.


To answer your question further, let's look at the rules for GPO and WEP (the Windfall Elimination Provision). These are two adjustments to Social Security benefits that affect people who receive non-covered pensions. ("Non-covered" means that a pension wasn't earned within the Social Security system and exists as an alternative pension.)


A non-covered pension is paid by an employer that doesn't withhold Social Security taxes from salaries – typically those of state workers and schoolteachers. Some states and school systems do participate in Social Security. But, they may provide an alternative pension instead when they don't.


For the GPO or WEP rules to be triggered, someone with a non-covered pension will also have access to retirement benefits from Social Security. For example, that access could result from Social Security spousal or widow(er) benefits or qualifying for retirement benefits based on their own Social Security-covered earnings.


In your case, there is no trigger, so you will not be affected. However, your wife would be affected if she had a Social Security benefit from other earnings during her career in addition to her non-covered pension. Also, if she tried to claim a spousal or survivor benefit on your Social Security work record. (You mentioned you were ready to claim benefits at 70, which would typically unlock the door for her to claim.)


I don't know the dollar amounts involved in each of your retirement benefits, but if her pension is large enough, the WPO could eliminate all the spousal benefit she might claim. And, if you predecease her, it could eliminate all of the survivor benefit she would otherwise receive. But she would continue to receive her own pension.


On the other hand, you were not a participant in a non-covered pension, so if your wife predeceases you and you are the beneficiary of her state-sponsored, non-covered pension, you will get a free pass. You will get your Social Security benefit because you participated in that system, and you will receive 100% of the survivorship benefit defined in her non-covered pension. You will have no WEP or GPO offsets to deal with.


If those rules are triggered, let's look at how they can affect someone's Social Security benefit. The GPO will take two-thirds of the pension and subtract it from the Social Security benefit as a rule of thumb. Depending on the specific numbers, there could be nothing left of the Social Security benefit. Or, if there is something left, that's what you will receive. Yet if the pension is large enough, the GPO can completely wipe out a survivor or spousal benefit.


However, the WEP will never wipe out all of a Social Security benefit. It might adjust it, but there is a cap, so it's not as punitive as the GPO. You actually have the ability to receive some of it. Today, without any other adjustments for cost of living or delayed retirement credits, the maximum WEP offset is about $500. And if your benefit is smaller than that, it only affects it by a percentage of the benefit.


In summary, the WEP can never eliminate your benefit, but it can reduce it by as much as $500 a month. But the GPO can be much more significant.


However inconvenient the WEP and GPO rules might seem, if both spouses are only Social Security recipients, the loss upon the passing of one spouse would be far more detrimental since one payment goes away completely. There's no chance for any of it to remain. At least with a pension and Social Security, you have the chance – if not the guarantee – of actually ending up in a little better position.

Here an example might help. Say we have a married couple, each with $3,000 of retirement benefit income. In one case, each has $3,000 coming from Social Security. In the other case, one spouse has $3,000 from Social Security, and the other has $3,000 from a non-covered pension.


In the case of the two Social Security benefits, when one spouse dies, the surviving spouse gets the higher of the two benefits or $3,000 in this example. That's a 50% cut in income.


Where each spouse has a different form of benefit, say the Social Security spouse dies first. The government will say to the surviving spouse with the non-covered pension, "We will subtract two-thirds of your pension from your spouse's Social Security survivor benefit. That will leave $1,000, which you will add to your $3,000 pension benefit." So they wouldn't take as much of a cut as when both spouses are on Social Security. At least there is a chance of a bump with the GPO, although not a guarantee.


But if the pension beneficiary dies first, the surviving spouse has the $3,000 Social Security retirement benefit plus the pension's survivor benefit, whatever that is. (If the non-covered pension happens to be a 100% joint-and-survivor benefit, the surviving spouse will continue to get the decedent's $3,000.) Because the survivor's job didn't create the non-covered pension, that spouse gets to keep it all – the GPO won't apply. So the survivor could possibly end up with $6,000.


And that's your case. You get to keep your Social Security, plus whatever is defined as the survivor benefit of your wife's non-covered pension should she predecease you.

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