This is the accessible text file for GAO report number GAO-02-950 
entitled 'Social Security Administration: Revision to the Government 
Pension Offset Exemption Should Be Reconsidered' which was released on 
August 15, 2002.

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Report to the Chairman, Subcommittee on Social Security, Committee on 

Ways and Means, House of Representatives:

United States General Accounting Office:


August 2002:

Social Security Administration:

Revision to the Government Pension Offset Exemption Should Be 





Matter for Congressional Consideration:

Agency Comments:



CSRS: Civil Service Retirement System:

FERS: Federal Employees Retirement System:

GPO: Government Pension Offset:

SSA: Social Security Administration:

August 15, 2002:

The Honorable E. Clay Shaw


Subcommittee on Social Security

Committee on Ways and Means

House of Representatives:

Dear Mr. Chairman:

This report addresses your request for information on the Government 

Pension Offset (GPO) exemption. Generally, Social Security benefits are 

payable to the spouses of retired, disabled, or deceased workers 

covered by Social Security. These benefits often provide income to 

wives and husbands who have little or no Social Security benefits of 

their own. If both spouses worked in positions covered by Social 

Security, each may not receive both the benefits earned as a worker and 

the full spousal benefit; rather the worker receives the higher amount 

of the two. However, until 1977, workers receiving pensions from 

government positions not covered by Social Security could receive their 

full pension benefit and their full Social Security spousal benefits as 

if they were nonworking spouses. At that time, legislation was 

enacted[Footnote 1] creating a GPO, to equalize the treatment of 

workers covered by Social Security and those with noncovered government 

pensions. The GPO prevented workers from receiving a full spousal 

benefit on top of a pension earned from noncovered government 

employment.[Footnote 2] However, the law provides an exemption from the 

GPO if an individual’s last day of state/local employment is in a 

position that is covered by both Social Security and the state/local 

government’s pension system.[Footnote 3] In these cases, the GPO will 

not be applied to the Social Security spousal benefit. The intent of 

the “last-day” exemption is unclear in the legislation.

Specifically, you asked us to (1) assess the extent to which 

individuals retiring from jobs not covered by Social Security may be 

transferring briefly to jobs covered by Social Security in order to 

avoid the GPO, 

(2) estimate the impact of such transfers on the Social Security Trust 

Fund, and (3) identify options for addressing potential abuses of the 

last-day exemption. On July 9, 2002, we briefed your staff on the 

results of our work. This report formally conveys the final version of 

the document used at that briefing.

This review originated from a referral to GAO’s FraudNET questioning a 

practice in Texas where individuals were transferring to Social 

Security-covered positions for one-day to avoid the GPO.[Footnote 4] To 

perform our work we first reviewed the GPO’s legislative history and 

government reports documenting the purpose of the offset and the Social 

Security Administration’s (SSA) policies and procedures for 

administering it. There is no central data on use of the GPO exemption 

by individuals and time constraints did not permit in-depth audit work 

on the approximately 2,300 state and local government retirement plans 

nationwide. Therefore, to assess the extent of these job transfers, we 

performed limited work with associations, researchers, and retirement 

system officials in 28 states. We selected these states either because 

they were authorized to operate retirement systems with both covered 

and noncovered positions or because their state or local government 

plans had a mix of covered and noncovered positions, thus offering the 

greatest potential for use of the last-day exemption. We also 

interviewed and obtained documentation from SSA headquarters and 

regional officials; and other federal officials knowledgeable about the 

subject matter, such as the Congressional Budget Office and the 

Internal Revenue Service. Finally, we visited and performed audit work 

in Texas and Georgia, two of the states where we identified use of the 

last-day exemption. We conducted our work from April through June 2002 

in accordance with generally accepted government auditing standards.

Given our time constraints we could not definitively confirm that this 

practice is occurring in other states. However, we were able to 

establish that in Texas and Georgia 4,819 individuals as of June 2002 

performed work in Social Security covered positions for short periods 

to qualify for the GPO last-day exemption.[Footnote 5] Texas officials 

reported 4,795 individuals; Georgia officials reported an estimated 24 

cases. SSA officials also acknowledged that use of the exemption might 

be possible in some of the approximately 2,300 state and local 

government retirement plans in other states where such plans contain 

Social Security covered and noncovered positions. In Texas, teachers 

typically worked a single day in a nonteaching position covered by 

Social Security, such as a clerical or janitorial position. Based on an 

hourly wage of about $6, these individuals in Texas typically paid a 

total of $3 in Social Security taxes. In Georgia, teachers generally 

agreed to work for approximately one year in another teaching position 

in a school district covered by Social Security. Officials in both 

states indicated that use of the exemption would likely continue to 

grow as awareness increases and it becomes part of individual’s 

retirement planning.

For the cases we identified in Texas and Georgia, increased long-term 

benefit payments from the Social Security Trust Fund could be about 

$450 million.[Footnote 6] This figure was calculated by multiplying the 

number of last-day cases reported in Texas and Georgia (4,819) by SSA 

data on average annual offset amount ($4,800) and the average life 

expectancy upon receipt of spousal benefits (19.4 years). These 

estimated payments would likely increase as use of the exemption grows.

Options for addressing potential abuses of the GPO exemption include 

(1) changing the last day provision to a longer minimum time period or 

(2) using a proportional approach based on the number of working years 

as a government employee spent in covered and noncovered employment for 

determining the extent to which the GPO applies. The first option would 

require only small changes to administer and has precedent in 1987 

legislation that required federal employees who transferred from the 

Civil Service Retirement System (CSRS) to the Federal Employees 

Retirement System (FERS) to remain in FERS for 5 years before 

retirement to be exempt from the GPO. The second option may represent a 

more calibrated approach to determining benefits for individuals who 

have made contributions to the Social Security system for an extended 

period of their working years. However, SSA has noted that a 

proportional approach would take time to design and would be 

administratively burdensome to implement, given the lack of complete 

and reliable data on noncovered Social Security employment.

The GPO “loophole” raises fairness and equity concerns for those 

receiving a Social Security pension and are currently subject to an 

offset of their spousal Social Security benefits. In the states we 

visited, individuals with a relatively small investment of work time 

and only minimal Social Security contributions can gain access to 

potentially many years of full Social Security spousal benefits by 

using the GPO exemption. Also, providing full spousal benefits to 

individuals who receive government pensions and made only nominal 

contributions to the Social Security system runs counter to the 

nation’s efforts to address the solvency and sustainability of the 

Social Security program. Finally, the last-day exemption could have a 

more significant impact if the practice grows and begins to be adopted 

by other states and localities.

Matter for Congressional Consideration:

Considering the potential for abuse of the last-day exemption and the 

likelihood for its increased use, we believe timely action is needed. 

We are making a matter for congressional consideration that the last-

day GPO exemption be revised to provide for a longer minimum time 

period. This action would provide an immediate “fix” to address 

possible abuses of the GPO exemption identified in our review.

Agency Comments:

We provided a draft of this briefing to SSA officials for comment on 

July 3, 2002. On July 8, 2002, SSA provided oral comments on our draft 

briefing. SSA generally agreed with our briefing’s findings and 

provided several technical comments, which we incorporated where 

appropriate. We also provided a draft of this report to the 

Commissioner of Social Security for comment. On August 7, 2002, we 

obtained written comments on our draft report from SSA. SSA generally 

agreed with our report’s findings and provided several technical 

comments, which we incorporated where appropriate.

We are sending copies of this report to relevant congressional 

committees and other interested parties and will make copies available 

to others upon request. In addition, the report will be available at no 

charge on the GAO Web site at

If you or your staff have any questions about this report, please 

contact me on (202) 512-7215 or Daniel Bertoni on (202) 512-5988. 

Patricia M. Bundy, Jamila L. Jones, Daniel A. Schwimer, Anthony J. 

Wysocki, and Jill D. Yost also made key contributions to this report.

Sincerely yours,

Barbara D. Bovbjerg

Director, Education, Workforce,

 and Income Security Issues:

Signed by Barbara D. Bovbjerg:

[End of section]


[See PDF for image]

[End of section]


[1] Public Law 95-216, Section 334 (1977).

[2] Currently, the reduction in spousal benefits is two-thirds of the 

amount of their public pension.

[3] Exemption due to “The Last Day of Employment” Covered Under Social 

Security - State/Local or Military Service Pensions (SSA’s Program 

Operations Manual System, GN 02608.102).

[4] FraudNET is a service maintained by GAO’s Office of Special 

Investigations. GAO subsequently determined that use of the GPO last-

day exemption is permitted under the law. 

[5] Technically, individuals could have used this exemption since its 

passage in 1977. However, nearly all of the transfers we identified in 

Texas and Georgia occurred in the last several years. 

[6] This estimate may over/under estimate costs due to the use of 

averages, the exclusion of inflation/cost-of-living/net present value 

adjustments, lost investment earnings by the Trust Funds, and other 

factors that may affect the receipt of spousal benefits. 

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