WEP & GPO repeal, Schedule F among issues facing Congress

A recent hearing once again considered what to do about Windfall Elimination Provision and the Government Offset Pension.

July 3, 2024 3:45 pm 9 min read

Debate over Social Security benefit blackouts for certain federal, state and local government employees, it never ends. A recent hearing once again considered what to do about Windfall Elimination Provision and the Government Offset Pension. One observer who listened closely, the staff vice president at the National Active and Retired Federal Employees Association, John Hatton. He gives the Federal Drive with Tom Temin an update.

Interview Transcript:

Tom Temin And John the beat goes on with respect to the Windfall Elimination Provision and the Government Pension Offset for Social Security the weapon the GPO, will tell us about what you took from the recent hearing that took place.

John Hatton Well, it’s just another step in the right direction and NARFE and our allies’ efforts to get some relief from these two provisions. And it was a field hearing in Ohio. So, this is now the first Senate hearing of the Congress, there’s two House hearings on the topic. There has been a flurry of increased co-sponsors, or WEP and GPO in both the House and the Senate. So, I think it’s 57 and counting in the Senate, we’ll see where it is, even by the end of this week. In terms of the numbers, I think there’s a few people that are just being registered on those co-sponsor counts on the Senate side, were 322 in the house. So, we keep on putting the pressure on the hearings by the committee’s even Chairman Wyden of Senate Finance expressed support for the bill. So, all those things are good things, we still face the large obstacle of the cost of this when we’re facing Social Security solve insolvency issues in the 2030s. And so, I think it was important to see that Wyden said he supports this, but also he indicated that it needs to be done in a responsible way for Social Security. And that continues to be the challenge of getting a solution here. Right. So, solution would not be total elimination of the Windfall Elimination or the Pension Offset, because that would just give people benefits they did not pay for and they’re not entitled to, there’s got to be some middle ground. We support full repeal. I mean, I think the argument for those is that you’ve paid in separately into your, in this case CSRS system and paid and separate digital security, and you’ve earned the benefits that you would have gotten now WEP, for example, tries to give you a different replacement rate of income, it’s kind of a crude way of accounting for the fact that Social Security formulas was supposed to payout for like progressive amount of money. So, your replacement rate is higher if you had lower income and lower if you have higher income. When it’s really a quirk of the Social Security formula that you have the zeros in these years, you worked in CSRS, so it looks like you had lower income than you did have. So, there’s reasons behind the rationale, we still support that full repeal. But I think barring a change in the underlying social security formula, that repeal becomes a little more challenging. And there’s also just the cost offset amount of it. So, I think what is more realistic, is for Congress, in the near term for Congress to take a look at some type of modest relief, some change in that formula going forward if they don’t change the Social Security formula. And I think the repeal could happen if they’re doing an overall overhaul of Social Security and including changing how it’s calculated to begin with.

Tom Temin Well, that’s a big if, if they do a Social Security, because that’s kind of the principle fiscal issue facing the nation.

John Hatton It is definitely one of the major fiscal issues, and I think it’s but it’s one that they are going to have to address, you know, whether that’s sooner than later or later than sooner. I’m not sure. But I do think it’s in the next decade, they’re going to address that underlying social security issue. Now, can we get what we’re really trying to push for some type of relief before that happens from WEP and GPO? And I think the amount of support we’re getting a congressman that is positive in that regard. But I think the more realistic look is that you know that these committees of jurisdiction are going to try to find a way, hopefully to provide relief with having these costs offset. So, if there’s a more modest relief in the near term that probably is more feasible for these committees than something that would be larger in the full repeal, which again, we still support.

Tom Temin We’re speaking with John Hatton. He is the staff vice president for Policy and Programs at the National Active and Retired Federal Employees Association, NARFE and there’s also in the National Defense Authorization bill that’s sort of forming out of the mush for 2025. Something that would simply obviate the chance of there ever being a Schedule F so called from a future administration.

John Hatton Well, that’s our hope. There’s a Connolly, Fitzpatrick amendment to the NDAA. There’s been past efforts to include in that National Defense Authorization Act, these types of amendments to protect and prevent that return of Schedule F now, right now that OPM has issued a final rule that shores up that regulatory regime, but a new administration could come in with notice and comment rulemaking and turn that back. So, there’s some roadblocks in the way, but really, we need legislation to prevent this from occurring in the future. So, us and allies and Congress continue to push on that, you know, I don’t think we have the requisite amount of bipartisan support yet. For this, even if people do recognize that tearing down the merit based civil service could be a dangerous proposition.

Tom Temin Well, yeah, I guess it didn’t look at it. I mean, if, if a certain limited number of people are in scheduled F, that’s not all 2 million federal employees.

John Hatton true. But right now, we have what 3000 To 4000 political appointees. And if you’re expanding that to 50,000, that’s a significant substantial change in the way government operates. So, and I think that’s the most realistic threat from this, that it becomes just a huge expansion of the political appointees, I don’t think it means all 2 million are going to be revamped if schedule F is there. But it’s still a very broad, you know, when it was put into place, it was a very broadly written policy that could be interpreted to bring in a large swath of the federal workforce.

Tom Temin Okay, well, that probably will have some bipartisan support, not every Republican will go there, but probably enough to enable this to become law, I would think, and just looking at the arithmetic of how some of the other votes have gone. And on House Appropriations, a lot of cuts across the board. And then the other provision that is there has to do with the TSP and people that have TSP investments really ought to pay attention to this one. And that is the ESG provision of the so called environmental, social and governance criteria for investment. Tell us what that’s all about and what this language would do for the TSP.

John Hatton Yeah, a very modest increase. For OPM in the fiscal year 2025. House Bill, now the House bills are going are being written at levels lower than I think will be eventually passed. You know, there’s an underlying budget deal that was passed as part of the increase in the debt limit, I expect there to be, there’s not a finalization of the total top line numbers, but I expect it to look something like that. And I think then the House bills are coming up below that, but OPM was spared from severe cuts in the House bill. And so, you know, that’s probably the lower end of the spectrum of where you’re going into negotiation. So that’s a good thing. You know, we certainly want to see them get the type of investments in information technology that they can modernize their retirement processing, that can help just make things better for everybody, then IT modernization funding, and that it wasn’t receiving a big cut. Yes, so there’s language in the US House Financial Services, and General Government Appropriations Bill that would prohibit any use of funds for TSP investments into these anything with criteria for environmental, social, and governments. In terms of basing those investments. Our concern is that one, this really doesn’t affect the core TSP funds, right. None of the core TSP funds use that they are based on fiduciary standard. So, it’s a little bit of a solution in search of a problem. But it would affect the mutual fund window, which allows people who have TSP investments to take their money outside of those poor funds, if they decide they want to have some diversification, if they want to invest in ESG. The problem with this particular language in our view is or this is maybe more in the Federal Retirement Thrift Investment Board view is that it could be overly burdensome for them just to administer and decide which of these you know, 55,000 different funds that people have options for are basing their investments on these ESG criteria. So, it could potentially force them to close down the entire mutual fund window, which would take away the ability for TSP investors to have this diversification and this, this ability to invest. And if you really do if you are a TSP investor, and you really do want to invest in ESG, and this comes along, well, you’ll just be able to take your money out of the TSP to do that anyway. So, it doesn’t really have much effect. But it just it could really just threaten that ability to do it within the TSP, which is a lot easier for people.

Tom Temin Right? You could always say, well, I really love ESG. Why any investor would I don’t know. But if you did, then you could say, I’m going to instead of diverting 5%, I’ll go with two and a half percent to the TSP, and then take your own money and put it in ESG just as a 401k, if that’s your desire.

John Hatton Right? And I think this this language really conflates different policies that are trying to incentivize ESG investments with giving investors choice to do whatever they want to do with their money. Because again, the core TSP funds are not using ESG criteria at all right? And, you know, we wouldn’t support them doing so they should be based on the best interest of participants in terms of fiduciary standard. So, you know, we still though support people having the choice of their own money and this this seems to go away from that.