The federal government is finally coming to grips with the administrative overload placed upon the Social Security Administration, which has resulted in a balance of more than $20 billion waiting to be clawed back from unsuspecting beneficiaries.
Congress is demanding solutions from the Social Security Administration, which is considering alternatives that would cost future retirees billions of dollars by accelerating insolvency. Instead, Congress should adopt a simple and affordable solution called responsibility: the person who makes the mess must clean it up.
One part of this clean-up effort stems from obscure rules buried in the program’s benefit formula, the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), both of which adjust the benefit checks of beneficiaries who collect a pension from an employer that does not participate in Social Security. While the rules affect about 1 percent of all beneficiaries, the Office of the Inspector General found that processing claims subject to these rules is a resource intensive, error prone process that results in significant improper payments.
An Illustration
A north Texas woman received a notice from the Social Security Administration in 2023 that she owed the agency more than $40,000 for overpayments related to her survivor benefit that was subject to the GPO for a period of years.
Improper Payments For WEP/GPO Beneficiaries
The overpayments result from a policy that hinges on its least reliable component, the elderly retiree who may have little to no understanding of what the WEP or GPO rules entail. The unsuspecting retiree serves as both the trigger of overpayment and the systemic fail safe against the improper payment.
In the case above, a grieving widow likely misfiled the paperwork, and subsequently didn’t recognize that the check was too large over a period of years.
What Congress Is Doing
Unfortunately, Congress wants the solution to come from the one organization that cannot fix this problem: the Social Security Administration (SSA). Essentially, the SSA lacks the carrots and/or the sticks to control the cause or remediate the consequences of a mistake that can remain latent for years.
As things are, the only way for the SSA to improve the process in place today is to make smarter retirees.
What Congress Should Be Doing
The collective attention of Congress, the SSA, and retirees should be centered on the organization that caused the problem. Seniors are subject to the WEP and GPO because their employer made a business decision to run a pension independent of Social Security. That decision is fine; however, it creates a hazard for employees when they retire.
Unfortunately, the risk created by this business choice is magnified exponentially by a second business choice, which is to adhere to a lax safe-harbor provision for informed consent from the employee. At present, the employer is only required to provide a statement to the employee that a state pension might affect Social Security benefits. Even if the statement is read, that worker is expected to remember these rules for a period of up to 40 years.
The Hazard
Some might ask: what hazard did the employer create? The hazard for a retiree is the possibility of receiving a letter demanding $40,000 at a time when the retiree is trying to adjust to life on a smaller, fixed income. The hazard for the rest of us is the retiree might not be able to repay the bill.
A Smarter Retiree
While the Social Security Administration can’t make a retiree smarter over time, Congress can by mandating a high-standard for the safe-harbor for informed consent from state and local employers.
As things currently stand, the process expects the retiree to fill-out the paperwork correctly, even though the retiree may have no idea what these rules actually mean. Since 2004, informed consent has been established by an employee’s signature on a form signed prior to the date of employment. Even assuming that the employee reads and understands the form in full, policy experts should expect a continuing stream of retirees who have no clue what WEP and GPO mean to filter into the system over the next two decades.
Responsibility
This means the penalties of the business decision of the state employer is felt by the random future retiree who is subject to the consequences of an accelerated insolvency of the system. This is the antithesis of responsibility.
The simple solution is to require state employers to act as agents to fill-out the claiming benefits on behalf of the employee while holding the state agency accountable for the mistakes. The administrators of state-run pensions may not like this solution. If it is too costly, the clear message to the state employer is to get out of the business.
The employers who cause the mess should have to disclose to the employee the impact of working for an employer that does not participate in Social Security prior to being hired, immediately prior to vesting in a pension, when the worker turns 55-years-old, and whenever the worker leaves employment.
There should not be one retiree who finds out that their retirement plan has been eviscerated when their first check arrives solely to save the state employer the trouble of explaining the impact of a business choice on the worker.
Don’t Wait on Congress
Sensible informed consent guidelines are fairly easy to implement and effective provided that they are required by the employer.
As a baseline, I would encourage the employer to file for claiming paperwork for the employee to ensure that the paperwork was completed correctly. Further, states should reach agreements with the Social Security Administration to share pension data and wage data so that incorrect payments do not fester for years. If states conclude that such agreements are not possible, they are free to pay back the Social Security system for the cost of paperwork that is misfiled.
In contrast, the idea today is we should punish the random taxpayer for the business choice of state and local governments. The better idea is requiring the person who created the mess to clean it up. It’s called responsibility.
Brenton Smith (think@heartland.org) is a policy advisor with The Heartland Institute.
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