Legislature(2003 - 2004)
02/10/2004 03:30 PM Senate STA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSHJR 30(STA)-ELIMINATE SOCIAL SECURITY OFFSET
REPRESENTATIVE CARL GATTO, resolution sponsor, stated that HJR
30 pertains to Social Security and asks Congress to repeal both
the Windfall Elimination Provision (WEP), and the Government
Pension Offset (GPO) provision from the Social Security Act.
In the early 1980s, the State of Alaska elected to opt out of
Social Security and to establish the Public Employees'
Retirement System (PERS) and the Teachers' Retirement System
(TRS). Sometime thereafter Social Security changed their rules
and imposed a penalty on most members that retired after 1985
and qualified for both Social Security and a public pension from
a job not covered by Social Security.
Few people, he warned, are aware of this penalty and are
devastated when they learn about it because it's too late to
make different career decisions. For instance, he began
receiving Social Security about a year ago after having paid
into the system for 50 quarters, which is ten quarters more than
required. He receives about $100 per month, which is
considerably less than the amount the personalized printouts
Social Security sent to him indicated.
A Social Security benefit can be reduced in one of two ways.
First, the Windfall Elimination Provision (WEP) modifies the
formula that is used to figure a Social Security benefit and
gives a reduced benefit for those individuals who qualify for
Social Security through their earnings record and have also been
an Alaska public employee (PERS) or teacher (TRS). The modified
benefit is used the first month you receive both a Social
Security benefit and the pension from work that didn't pay into
Social Security.
The other way the Social Security benefit can be reduced is the
Government Pension Offset (GPO). This applies if you receive a
pension from a federal, state, or local government that isn't
covered by Social Security and are eligible for Social Security
benefits as a spouse or widow(er). This affects both PERS and
TRS retirees.
REPRESENTATIVE GATTO gave a hypothetical example of what would
happen if he were to die before his wife. Assume he receives a
public pension of $3,000 per month and a Social Security payment
of $2,000 per month. As a survivor, his wife would receive just
the $3,000 pension because of the offset. Social Security would
offset two-thirds of his pension or $2,000 from his $2,000
Social Security benefit so his spouse would receive no spousal
Social Security benefit whatsoever.
HJR 30 asks the Alaska Congressional Delegation to join the 29
senators and 284 representatives who have signed as co-sponsors
to repeal the provisions.
CHAIR GARY STEVENS said he assumes this would apply to states
other than Alaska.
REPRESENTATIVE GATTO said there are 14 other states that opted
out of Social Security. He thought Alaska was right to opt out,
they just didn't know there would be a penalty applied.
CHAIR GARY STEVENS asked if all the other states opted out the
same way that Alaska did.
REPRESENTATIVE GATTO said that's what he thought, but he didn't
have that information.
SENATOR JOHN COWDERY asked what the other states are doing.
REPRESENTATIVE GATTO clarified the states that pay into the
Social Security system aren't affected. The provisions only
apply to the 15 states that opted out of Social Security.
SENATOR COWDERY asked a question about his personal situation.
REPRESENTATIVE GATTO replied he didn't believe the senator would
be affected. His concern is for the people that have made career
decisions based on what they have been led to believe they would
receive from Social Security when, in fact, they won't. He
predicted this would be a serious situation for more people than
you might guess.
SENATOR COWDERY said he has been receiving a PERS retirement
check since 1995 and he wondered how these provisions might
affect him.
JERRY PATTERSON, NEA-Alaska Retired, explained two ways to avoid
the penalty. First, individuals that paid Social Security and
PERS throughout their career aren't affected. Second, the
penalty is generational so people that were eligible and retired
from state service in 1985 avoided the penalty.
REPRESENTATIVE GATTO noted that the House Finance Committee met
with PERS and TRS retirement last night and learned a good deal
about what is needed to keep that system solvent.
CHAIR GARY STEVENS said the disincentive for retired troops to
become teachers in Alaska is shocking and asked for a comment.
REPRESENTATIVE GATTO replied there are two issues. First there
are people who might consider moving to Alaska to teach after
they retire and the other issue is those retirees who decide to
leave Alaska at some time before the start the eighth year of
teaching.
For instance, if a retired autoworker from Michigan is receiving
Social Security and he or she moves to Alaska and teaches for
seven years, everything looks fine. At the start of the eighth
year, the provision to reduce the Social Security benefit kicks
in. This makes it difficult for Alaska to recruit teachers who
have retired from a job outside Alaska and easy for retirees who
are teaching to leave Alaska after their seventh year.
MR. PATTERSON said the troops-to-teachers program typically
targets retirees from the military who have Social Security
benefits so it's more advantageous to those retirees to go to a
state where the penalties don't apply. The head of the troops-
to-teachers program in Alaska is well aware of the penalties and
has expressed concern.
CHAIR GARY STEVENS asked him to explain the troop-to-teacher
penalties.
MR. PATTERSON explained that retired military personnel would
become vested as a teacher in Alaska at eight years. Upon
vesting, they would already be pegged for a Social Security
reduction starting at something less than 60 percent and going
down to zero.
SENATOR COWDERY asked which public positions are affected in
addition to teachers and state employees.
MR. PATTERSON replied police, firemen, and municipalities that
opted out of Social Security. Potentially, 7,000 people between
the ages of 65 and 75 are impacted and some 11,000 people
between 55 and 65 years old are due to be impacted.
CHAIR GARY STEVENS asked if he mentioned the University of
Alaska because they are affected.
MR. PATTERSON said he considers them to be TRS.
SENATOR BERT STEDMAN remarked he ran into this in his work
before he became a legislator. Some clients had no idea this
existed while others knew, but didn't understand the
implications. He stated he didn't think the current penalty and
offset structure is fair and he'd like to see them removed. The
state would benefit greatly if the teacher retention issue was
resolved and removing the penalties would be fair to everyone.
CHAIR GARY STEVENS asked about the situation in which a widow
receives a substantially reduced pension.
REPRESENTATIVE GATTO said he likes to use numbers because
they're more descriptive.
A $3,000 a month pension, you're entitled to $36,000
per year. If you are subject to the provisions of
Social Security here - if you also had a great amount
of Social Security benefit like $2,000 - well they
could take the entire $2,000 of your Social Security
benefit because of the two-thirds. Two-thirds of
$3,000 is $2,000. If your benefit was $2,000 in Social
Security, that's the amount that's removed. If your
benefit was $1,500 in Social Security, that's under
the $2,000 so they take 100 percent of it [the Social
Security benefit]. Therefore you're left with the
pension only, which wasn't part of your planning.
MR. PATTERSON pointed to the nationwide statistic that 9 out of
10 individuals lose the entire spouse survivor's benefit.
MARIE DARLIN, retired federal employees representative,
testified in support of HJR 30. She said the reason the retired
federal employees are concerned is because they paid into the
civil service retirement system and not the Social Security
system so the Social Security provisions adversely affect them.
Federal employees are now part of FERS [Federal Employees
Retirement System] that pays into Social Security, but it
doesn't help those who retired under the old system.
She read the following:
Alaska has over 6,600 annuitants in the state of which
1,336 are survivor annuitants. They bring about $12.5
million monthly into the economy of this state.
About 1,500 people are actually members of NARFE
(National Association of Retired Federal Employees)
and our Alaska federation has been active since 1987.
NARFE has been working for years to get Congress to
repeal these pension offsets since they began in 1982,
although they didn't become effective until about
1985. They were intended to reduce the Social Security
annuities of anyone who also received a government
annuity. By that they meant anybody who had not paid
into Social Security - as a city government, state
government, or the federal government never did.
We feel this is totally unfair because those Social
Security payments were made to Social Security and the
employers made their portion of the payments. And the
GPO reduces or eliminates the Social Security benefit
from the spouse Social Security. The other one, the
WEP, reduces a person's own earned benefit by using a
formula that can result in a loss of as much as 60
percent - or maybe even more - just because their
career or even a part of it was with a governmental
entity.
MS. DARLIN concluded the low-income widows are impacted the
most, but thousands are affected. She urged members to support
the resolution.
SAM TRIVETT, president of the Retired Public Employees
Association of Alaska (APEA/AFT), stated he represents the
retirees in the group that aren't teachers. They represent
people who have retired from state government as well as the
municipalities that participate in PERS. He said the association
supports the resolution strongly.
The association has become involved quite recently and he
acknowledged that is because they weren't aware of the
provisions before. He checked on his personal situation as a
retiree with a wife who is still working. If he dies before she
does, she will probably get no spousal Social Security.
Social Security sent him benefits statements regularly before he
retired and never informed him that his benefit would be reduced
because he was also a state employee. It wasn't until after he
retired and then signed up for Social Security that he learned
that his Social Security benefit would be reduced by about $500
per month. Multiply that by the number of months he expects to
live and that amounts to a considerable sum of money. There are
thousands of retirees in his same situation and it will have a
major impact on people's lives.
The state opted out of Social Security in 1980 and it wasn't
until six or seven years later that Congress passed the bill. No
one was notified of the change so they didn't have any idea they
should revisit their retirement decisions. The impact to the
state in terms of lost income will amount to millions of dollars
he warned.
A top official in the Social Security Administration admitted
they didn't send notification initially; they weren't sending
notification now and probably wouldn't start sending
notification for several years. When he was lobbying for the
repeal of these provisions he was asked why anyone should
support a repeal because Social Security can't afford it. His
response is that it is a penalty to those who continued to work
after the WEP and the GPO were passed. He and others paid the
full amount that was required into the system so that money is
in the system. "So the people that tell you the money is not
there are not right."
CHAIR GARY STEVENS asked if he understood correctly that anyone
who worked as a state employee, a teacher, or a university
employee before 1980 paid into Social Security.
MR. TRIVETTE said that is correct and noted he paid into Social
Security from the time he was in 9th grade until 1980 when the
state opted out.
There was no further testimony.
CHAIR GARY STEVENS asked for a motion.
SENATOR COWDERY made a motion to move CSHJR 30(STA) from
committee with individual recommendations and attached fiscal
note. There being no objection, it was so ordered.
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