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Legislation & Politics | ||
AFSCME VP Joe Rugola Testifies on the GPO and WEP before the House Ways and Means Subcommittee on Social SecurityTestimony of Joseph Rugola, International Vice President
Good morning, Mr. Chairman and members of the Subcommittee. I am Joseph Rugola, International Vice-President of the American Federation of State, County and Municipal Employees (AFSCME), Executive Director of AFSCME Local 4 – the Ohio Association of Public School Employees (OAPSE), and President of the Ohio AFL-CIO. I appreciate the opportunity to be here today in order to share our experiences and concerns regarding unfair provisions within Social Security, namely the Government Pension Offset and the Windfall Elimination Provisions. These laws have had a devastating effect on thousands of our members. My local union, known as OAPSE, is a statewide affiliate of AFSCME, the largest union for workers in the public service with 1.6 million working and retiree members nationwide. AFSCME represents a diverse group of federal, state, and local government employees, employees of health care institutions and non-profit agencies, and child care providers. OAPSE represents nearly 40,000 workers in school districts throughout Ohio. Our members include cafeteria workers, crossing guards, teachers’ aides, and custodial staff and other non-teacher staff who provide important services for our children. Ohio is a state that does not participate in Social Security for its public employees, so our OAPSE members are covered instead under SERS, Ohio’s School Employees Retirement System, which is a defined benefit pension plan. AFSCME is a strong supporter of the Social Security system, and we are troubled that the benefits of many of our members are unfairly reduced through the arbitrary application of two laws, the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP). Individuals hit the hardest by these two provisions are low- and moderate- income women, particularly widows. Government Pension Offset Let me start by sharing our views and experiences with the GPO, a federal law that has had a devastating effect on many Americans. The GPO applies to nearly everyone receiving a public pension from work not covered by Social Security. Nationally, about 29 percent of public employees, 6.8 million federal, state and local government employees, are not covered by Social Security and are subject to the GPO. In 11 states, over 50 percent of the public employees are not covered by Social Security, including Alaska, California, Colorado, Connecticut, Illinois, Louisiana, Maine, Massachusetts, Nevada, and Texas – and of course, my state of Ohio. Further, the percentage of employees ineligible for Social Security in Ohio, Maine, and Louisiana exceeds 75 percent. In Ohio, 97 percent of state and local employees are ineligible for Social Security. Public employers in these states operate their own pension plans for their employees. The workers who are not covered by Social Security vary from state to state and some number are found in all 50 states. They may include city, county, state and/or federal employees. According to current law, retirees cannot receive a Social Security benefit based on their own work record and also receive a full spouse or widow’s benefit. Rather, they can only collect the larger of the two. This is commonly referred to as the “dual entitlement” rule. For the purpose of the GPO, Congress made a determination in 1983 to arbitrarily equate two-thirds of a public pension (earned from work not covered by Social Security) with a Social Security earned benefit. The GPO essentially applies the dual entitlement rule to this portion of the pension and equates the remaining one-third portion of the public pension to a private pension benefit. But the situations really are not comparable. To start, school district employers in Ohio contribute 14 percent of payroll to SERS. The workers’ share is 10 percent. The total of these contributions – 24 percent – is nearly double the combined employer-employee contribution under Social Security, which is only12.4 percent. These rates are typical for public pensions in non-Social Security jurisdictions. Our experience shows that the GPO formula is capricious and the reasoning behind it faulty because it ignores the generally large contributions made to public pensions by both employers and their employees. This disparity is important because, unlike private pensioners whose pension plans are generally financed solely by employers, public pensioners typically put in more than half of the total pension contribution. Most private pensioners only pay into Social Security, yet they can receive a full pension AND a full Social Security benefit, with no offset of any kind. In effect, public pensioners are penalized for their contribution to their own retirement. But this is only one example of unfair and unequal treatment under the GPO. Consider taxes. A public retiree’s entire pension is subject to federal income tax – including the part that is deemed equivalent to Social Security. Most Social Security benefits, however, are tax-free. So, the public retiree is effectively hit twice – once with taxes and again with the GPO. It’s simply not right. Most of those adversely affected are women who began their careers expecting to retire with both a public pension and a Social Security spousal benefit. It’s a shock when they realize that they will not receive a much needed portion of their expected retirement income. Many of these retirees are forced to make extreme choices, because of the loss of income. They are already existing on shoestring budgets, having been low-wage earners, and the additional cuts are devastating, forcing them to continue working well into their twilight years, live without heat in the winter, sell their homes, move in with relatives, or even making it impossible for them to cover their Medicare premiums. When the GPO was first enacted, Congress thought many public retirees were getting multiple government pensions, leading to higher incomes in retirement than they had while working. The truth is very few public retirees fit this description. I’d like to share some typical examples with you: Evelyn Coup and Mary Steele, two OAPSE retirees and SERS pensioners. I doubt you would confuse them with the so-called “double and triple dippers.” Evelyn Coup of Bellevue, Ohio worked for 24 years as a bus driver for Bellevue Schools. She receives a SERS pension check of $544 a month, and from this amount must still deduct her monthly health insurance premium of $200. Normally, she could expect to receive a widow’s benefit of $733. Instead, the GPO reduces it to only $371.00, giving her a total monthly benefit – pension plus Social Security – of only $715.00 after paying her health insurance premium. In order to make ends meet, Evelyn has been withdrawing $5,000 from her savings each year. She now has only $8,000 in savings, and is forced to sell her home, which she can no longer afford. She can’t even afford to properly heat her home, as heating costs have doubled to $247 monthly. Clearly, Congress did not have these women in mind when the GPO was passed. Windfall Elimination Provision Like the GPO, the WEP also affects individuals receiving public pensions from work not covered by Social Security. When the public pensioner has also worked in a Social Security-covered job for at least a decade, the WEP creates a public pension offset that can greatly reduce that person’s earned Social Security benefit. The maximum reduction in 2007 was $340.00 a month. Nearly one million retired federal, state and local government employees are currently affected by the WEP. That number grows by about 60,000 retirees each year. In Ohio, nearly 71,000 Ohio public pensioners are affected by WEP. Under the WEP, part of a retiree’s public pension (from non-covered employment) is considered equivalent to a Social Security benefit. And, Social Security won’t let retirees collect two full benefits. So, instead of Social Security’s normal benefit formula, WEP retirees’ benefits are calculated using a modified formula. Theoretically, the WEP was created by Congress as a way to distinguish between low-wage workers and those who only appear to have had low-wage careers. The second category comprises workers who qualify for good pensions from primary jobs in the public sector that pay them well but do not cover them under Social Security; these workers also have secondary jobs in the private sector, at low-wages or short hours, but with Social Security coverage. The problem comes when the Social Security benefit formula is applied to their covered earnings, which makes them appear to be low-wage earners. That matters in figuring benefits because Social Security’s benefit formula is weighted in favor of those who had low earnings throughout their work lives. Congressional supporters of WEP believe that public employees with secondary jobs are getting an unfair advantage from the weighted Social Security benefit formula, which was designed to give low-wage workers a decent income upon retirement. But this is a faulty assumption. In reality, the Social Security Administration (SSA) does not determine what a public employee has earned in total wages. So, SSA does not know whether these workers are actually high earners or low earners, but treats them all as high earners. The WEP creates a totally arbitrary penalty that’s especially unfair because these workers pay the same percentage in payroll contributions on their Social Security-covered earnings as all others. Why should they be penalized by this unfair statutory provision? Wayne Knisely paid into Social Security for 25 years before he was laid off from his job. He then worked for 18 years as a bus driver for Bellevue schools. He now receives $658 from Social Security, only 65 percent of what he would be entitled to. He also receives $258 from his SERS pension. His total income is only $908 a month. As a result, Wayne can no longer afford a car and has to rely on others to drive him to doctor’s appointments. There is no public transportation where he lives. His wife can not afford to stop working at her minimum wage job; otherwise they could not survive unless they received public assistance. Mandatory Coverage Before I close, I’d like to make one more important point. In the opinion of AFSCME, the problems with the GPO and WEP in no way justify consideration of mandatory Social Security coverage in the public sector. When Social Security was established in 1935, states, cities, counties and other public entities were excluded from participation, and today, approximately 6.8 million state and local government employees do not participate in the Social Security system. These workers are currently covered under public pension plans that were designed to replace Social Security’s basic retirement and disability protections as well as provide a basic pension benefit. And, a recent report by the U. S. Government Accountability Office to your full Committee documents that the vast majority of these plans are well funded and actuarially sound. Furthermore, the Omnibus Budget Reconciliation Act (OBRA) of 1990 has already ensured that any temporary, part-time or seasonal employee not covered by one of these public plans be included in Social Security. As a result, basic pension protections are in place for all American workers – in both the private and public sectors. So, there is no need to mandate Social Security coverage in an effort to protect workers’ interests. On the contrary, mandated Social Security coverage would have serious negative implications for public employees, their employers, and their pension plans, and this is true even if the coverage applies only to future hires. Among the adverse consequences are the huge expenses that would be involved for workers and employers whose combined current pension plan contributions total, in many cases, 24 percent of payroll. We are also concerned about the possible establishment of new tiers of pension benefits, with lower benefits for the newly hired. This would destabilize pension plan finances for current participants and could lead to new taxes or cuts in public services in order to maintain plan solvency. Raising taxes or cutting services would, of course, also negatively impact the general public in a major way. While mandatory coverage creates much hardship, it would do little to help shore up the Social Security Trust Fund for the long-term. Mandated coverage adds only two years to the solvency of the trust fund, and in the long run, it could actually cost the system more, as new participants become eligible for Social Security benefits. Any short-term financial gains for Social Security must be weighed against the effect it would have on the retirement security of others. AFSCME, in conjunction with the Coalition to Preserve Retirement Security (CPRS) has studied this issue very carefully. We even commissioned a report by the Segal Company, an actuarial consulting firm, which outlines the costs and other problems associated with mandatory Social Security coverage for all public employees. Simply stated, mandatory coverage would negatively affect the financing of many state and local government pension plans and would adversely affect the retirement security of hundreds of thousands of public sector workers. Reforming or repealing the GPO and WEP makes far more sense. Conclusion The GPO and WEP unfairly penalize average public sector retirees and AFSCME believes that it is imperative for Congress to take action to eliminate the serious inequities and unintended consequences of the application of the GPO and WEP laws. The widespread bipartisan support that exists in Congress for making changes to these laws is due to the gross injustices these laws have created. Congress should act immediately to either repeal or reform both the GPO and WEP. We look forward to working with the Committee to finally rectify the arbitrary and unwarranted penalties to retired public sector workers. Thank you again for the opportunity to appear here today. |
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