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Selected Research & Analysis: Old-Age and Survivors Insurance (OASI) > Pension Interaction

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NOTE: Content on this page is intended for the research and policy analysis community and may not reflect current program information for the Government Pension Offset or the Windfall Elimination Provision.

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Windfall Elimination Provision
Program Explainers (released March 2022)
Government Pension Offset
Program Explainers (released March 2022)
State and Local Government Employees Without Social Security Coverage: What Percentage Will Earn Pension Benefits That Fall Short of Social Security Equivalence?
from Social Security Bulletin, Vol. 82, No. 3 (released August 2022)
by Jean-Pierre Aubry, Siyan Liu, Alicia H. Munnell, Laura D. Quinby, and Glenn R. Springstead

Social Security is designed to provide a base of retirement income, to be supplemented in part by employer-sponsored retirement plans. However, approximately one-quarter of state and local government employees are not covered by Social Security, which federal law allows if their employer-provided plans provide comparable benefits. Yet many public pensions are less generous for recent hires, raising questions of whether those plans will still provide Social Security–equivalent benefits. The authors analyze 66 plans and project that a significant minority of them are likely to fall short of providing Social Security–equivalent benefits, potentially affecting 750,000 to 1 million noncovered workers annually.

Vesting Requirements and Key Benefit-Formula Features of State and Local Government Pension Plans
from Social Security Bulletin, Vol. 81, No. 1 (released February 2021)
by Glenn R. Springstead

State and local governments provide pensions to their employees instead of or along with Social Security coverage. The Great Recession and other events have adversely affected some state and local budgets, leading to pension reforms that aim to lower benefits and bolster funding levels. Using data for 2016–2019 from fund financial reports and independent research center databases, this article examines three key components of standard pension benefit formulas: vesting periods, final-average-salary computation periods, and benefit multipliers. This analysis is the first to examine those characteristics at the level of individual benefit tiers in state and local pension systems, and more significantly, to weight the statistics by the number of active members within each tier. Results are shown for tiers grouped by Social Security coverage status, worker occupation group, and whether the tier is open or closed to new hires.

Pensions for State and Local Government Workers Not Covered by Social Security: Do Benefits Meet Federal Standards?
from Social Security Bulletin, Vol. 80, No. 3 (released August 2020)
by Laura D. Quinby, Jean-Pierre Aubry, and Alicia H. Munnell

Federal law allows certain state and local governments to exclude employees from Social Security coverage if the employees are provided with a sufficiently generous pension. Approximately 6.5 million such workers were not covered by Social Security in 2018. Retirement systems for noncovered workers have become less generous in recent years, and a few plans could exhaust their trust funds within the next decade, putting beneficiaries at risk. This article examines data from a variety of sources to assess whether state and local governments currently satisfy the federal standards for retirement plan sufficiency and whether the standards ensure benefits equivalent to those from Social Security.

The Social Security Windfall Elimination Provision: Issues and Replacement Alternatives
from Social Security Bulletin, Vol. 79, No. 3 (released August 2019)
by Glenn R. Springstead

The Windfall Elimination Provision (WEP) reduces the Social Security benefits of individuals who would otherwise receive a full benefit based on earnings in Social Security–covered employment as well as pension income from noncovered employment. Since the WEP was established in 1983, critics have asserted that it overcorrects the would-be windfall for affected beneficiaries and is difficult to administer. This article considers two WEP replacement options that would modify the benefit calculation methodology. It compares the current WEP with the two options and discusses some of the possible effects of changing the current law.

Social Security Retirement Benefits and Private Annuities: A Comparative Analysis
Issue Paper No. 2017-01 (released May 2017)
by Dale Kintzel

Retirement income in the United States has been described as a three-legged stool composed of Social Security benefits, personal savings, and employer-based retirement plans. For the latter, today's workers usually have a defined contribution plan in which the worker and employer contribute to the plan and the worker bears the risk for account performance. At retirement, the worker has the option of purchasing an annuity, which is similar to Social Security benefits and traditional defined benefit pension plans insofar as they provide a steady income stream for life. This issue paper examines the similarities and differences between Social Security retirement benefits and annuities, and the factors that determine how much lifetime retirement income an individual would receive.

The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study
from Social Security Bulletin, Vol. 74, No. 3 (released August 2014)
by Alan L. Gustman, Thomas L. Steinmeier, and Nahid Tabatabai

This article examines the Social Security Windfall Elimination Provision and Government Pension Offset. These provisions reduce the Social Security benefits of workers (and the resulting benefits of their spouses) if the prime beneficiary worked in “noncovered” employment (in which Social Security payroll taxes were not paid) and the noncovered job provided a pension, or if the spouse or survivor earned a pension from noncovered work. Using Health and Retirement Study data uniquely suited to the analysis, the authors calculate the household-level average lifetime benefit reductions resulting from these provisions and examine them in the context of lifetime Social Security income, pension income, and total wealth. The analysis also isolates the effects of pensions from noncovered employment on benefit adjustments and wealth.

Social Security Beneficiaries Affected by the Windfall Elimination Provision in 2006
from Social Security Bulletin, Vol. 68, No. 2 (released October 2008)
by Barbara A. Lingg

The Windfall Elimination Provision (WEP) is a method of computing benefits for some workers who receive a pension based on non-Social Security covered work. At the end of 2006, about 970,000 beneficiaries, mainly retired workers, were affected by the WEP. This article provides a brief legislative history, describes the WEP computation, and presents statistical data about beneficiaries affected by the WEP.

Design and Implementation Issues in Swedish Individual Pension Accounts
from Social Security Bulletin, Vol. 65, No. 4 (released May 2005)
by R. Kent Weaver

Sweden's new multipillar pension system includes a system of mandatory fully funded individual accounts. The Swedish system offers contributors more than 600 fund options from a variety of private-sector fund managers. However, in the most recent rounds of fund choice, more than 90 percent of new labor market entrants have not made an active choice of funds and thus have ended up in a government-sponsored default fund.

The Swedish system offers a number of lessons about implementing a mandatory individual account tier. Centralized administration keeps administrative costs down but requires considerable lead time. A very large number of fund options are likely to be offered unless strong entry barriers are in place. Engaging new labor market entrants in fund choice is likely to be difficult. A significant percentage of those making an active fund choice may choose funds that are very specialized and risky. Finally, special care must be devoted to designing a default fund and continual consumer communication.

The Canada Pension Plan's Experience with Investing Its Portfolio in Equities
from Social Security Bulletin, Vol. 64, No. 2 (released September 2002)
by Mark A. Sarney and Amy M. Preneta

This article examines the experience of the Canada Pension Plan (CPP) in investing its surplus funds in equities. The CPP investment policy is viewed by some experts as a possible model for increasing the investment income of Social Security. The article discusses the key features of this policy, its implementation, and results to date.

Characteristics of Individuals with Integrated Pensions
from Social Security Bulletin, Vol. 62, No. 3 (released January 2000)
by Keith A. Bender

This article uses data from the Health and Retirement Survey to examine the characteristics of individuals who are covered under integrated pension plans by comparing them with people covered by nonintegrated plans and those with no pension plan.

Characteristics of Individuals with Integrated Pensions
ORES Working Paper No. 83 (released July 1999)
by Keith A. Bender

Employer pensions that integrate benefits with Social Security have been the focus of relatively little research. Potentially this is an important omission given the current Social Security reform debate. Since changes in Social Security benefit levels and other program characteristics can affect the benefit levels and other features of integrated pension plans, it is important to know who is covered by these plans. This paper uses data from the Health and Retirement Survey to examine the characteristics of individuals who are covered under integrated pension plans by comparing them with people covered by non-integrated plans and those with no pension plan. The results show that individuals who are female, white, non-unionized, or do not have postgraduate education are significantly more likely to be in an integrated employer pension plan.

Pension Integration and Social Security Reform
ORES Working Paper No. 75 (released July 1998)
by Chuck Slusher

Many employer-provided pension plans explicitly account for Social Security in their benefit formulas—a practice known as integration. Because integrated pensions are directly linked to Social Security, both the incidence and design of explicitly integrated plans are likely to be affected by changes in the current Social Security program. While integration has been mentioned as an important issue in discussions of Social Security reform, researchers have largely ignored the concept of pension integration. This paper provides basic information about pension integration and addresses, in general terms, the relationship between Social Security reform and pension integration.

Social Security and Private Saving: Theory and Historical Evidence
from Social Security Bulletin, Vol. 48, No. 1 (released January 1985)
by Selig D. Lesnoy and Dean R. Leimer
Social Security and Private Saving: An Examination of Feldstein's New Evidence
ORES Working Paper No. 31 (released October 1983)
by Dean R. Leimer and Selig D. Lesnoy

In a recent article in the Journal of Political Economy (Leimer and Lesnoy 1982), we presented new time series evidence that cast considerable doubt on earlier evidence presented by Martin Feldstein (1974) which implied that social security had a large and statistically significant negative effect on personal saving in the United States. Our results may be summarized as follows: First, the social security wealth variable used by Feldstein was seriously flawed as a result of a computer-programming error. Simply correcting this error substantially changes the estimated effect of social security on saving. Second, the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable. These assumptions relate, first, to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and, second, to estimates of the number of workers, dependent wives, and surviving widows who will receive benefits. Adopting reasonable assumptions that differ from those used by Feldstein leads to generally weaker estimates of the relationship between social security and saving. Finally, the estimated relationship between social security and saving is acutely sensitive to the period of estimation examined. We concluded that the time series evidence simply does not support the hypothesis that social security has substantially reduced personal saving in the United States.

Report of the National Commission on Social Security Reform
from Social Security Bulletin, Vol. 46, No. 2 (released February 1983)
Social Security and Private Saving: New Time Series Evidence with Alternative Specifications
ORES Working Paper No. 22 (released September 1981)
by Selig D. Lesnoy and Dean R. Leimer

The purpose of this paper is to consider several alternative specifications of the consumer expenditure function.

Social Security and Private Saving: A Reexamination of the Time Series Evidence Using Alternative Social Security Wealth Variables
ORES Working Paper No. 19 (released November 1980)
by Dean R. Leimer and Selig D. Lesnoy

In an important article in the Journal of Political Economy [1974], Martin Feldstein estimated that the introduction of the social security system had reduced personal saving by 50 percent, with serious consequences for capital formation and output. His conclusion was based on a consumer expenditure function estimated with U.S. time series data and incorporating a social security wealth variable of his construction.

The original intent of this paper was to examine the sensitivity of Feldstein's conclusions to certain assumptions underlying his construction of the social security variable. In particular, we wanted to examine the implication of his assumptions concerning how individuals perceive future benefits and taxes.

Social Security and Private Saving: Another Look
from Social Security Bulletin, Vol. 42, No. 5 (released May 1979)
by Robert J. Barro, Michael Darby, Martin Feldstein, and Alicia H. Munnell