Kathleen Yerbich was a newly-hired teacher sitting in a seminar with dozens of other teachers and school staff one day in the mid-2010s, going over the arcana of retirement benefits — here’s what the state chips in, here’s how long it takes to vest, here’s how you choose your investments — when the presenter said something that grabbed her attention.
"He says, there's the windfall elimination provision and the government pension offset, so if you've paid into Social Security, you're not going to end up getting your full Social Security benefits. There was an audible gasp in the room, because nobody knew about it," Yerbich said. "I was one of them — I had no idea."
Yerbich had spent a decade as a signalman and narcotics dog handler in the U.S. Navy before starting her second career as a mom, and later a teacher at a charter school in Wasilla.
The career change was the problem. Because Yerbich will be eligible for state retirement benefits after she steps away from teaching, Social Security will likely reduce her benefits by a significant margin, despite the fact that she paid into the program during her earlier time in the Navy. She's subject to the reductions because the state of Alaska and many local governments don't participate in Social Security.
But Yerbich may not face that threat much longer.
A bill that would repeal the windfall elimination provision and government pension offset — and, in effect, increase some 15,000 Alaskans’ Social Security benefits — is headed for President Biden’s desk and is expected to become law after passing the Senate 76-20 early Saturday ahead of a vote averting a government shutdown. The Social Security Fairness Act passed the House in November by a similarly wide bipartisan margin.
Yerbich is far from the only Alaskan surprised to find out they might see less in Social Security benefits because of their public service, said Tom Klaameyer, the head of Alaska’s largest teacher’s union, NEA-Alaska. If anything, she found out sooner than many.
"Those who are impacted often, unfortunately, find out about it much later, some of them not until they're ready to retire," Klaameyer said.
The two benefit-reducing laws have had an outsized impact on Alaskans. The windfall elimination provision alone affects some 15% of Alaska retirees, the highest per-capita figure in the nation. Sen. Lisa Murkowski, R-Alaska, pointed to those numbers on the Senate floor.
"I've been hearing from these folks for the entire tenure that I've been here in the United States Senate, hearing about the disparate impact on Alaskans, hearing about the inequity, the unfairness," she said. "I've earned these benefits, and yet I'm not able to receive the full benefit. Where is the fairness in that?"
A spokesperson for Sen. Dan Sullivan, R-Alaska, said the Social Security Fairness Act "an important piece of legislation" in an emailed statement.
"The Senator believes Alaskans who qualify for retirement benefits under certain programs, such as Alaska’s PERS and TRS, are public servants who should not be penalized by the Social Security Administration and the IRS for being pushed into a system they didn’t choose," spokesperson Amanda Coyne said.
Back when it was first passed in the mid-1980s, the windfall elimination provision was supposed to make Social Security more fair — and preserve a system facing a crisis.
At the time, alarm bells were ringing. Social Security was close to running out of money to pay retirees, disabled people and surviving spouses, according to a bulletin published by the Social Security Administration in 1983.
Congress and President Ronald Reagan eventually came up with a compromise to avert the crisis — and that included the Windfall Elimination Provision.
"The changes in this legislation will allow Social Security to age as gracefully as all of us hope to do ourselves, without becoming an overwhelming burden on generations still to come," Reagan said at a signing ceremony on the South Lawn of the White House in April 1983.
That’s what created the rule we have today: if at retirement age, you haven’t worked more than 30 years in a job covered by Social Security, and you receive a state retirement or disability benefit, you could have your benefits cut by as much as half, in some cases. The government pension offset is similar, but for surviving spouses rather than retirees. The specifics are different, but at the end of the day, it’s the same goal: leveling the field for people who get government pensions.
And today, a wide range of policy experts across the political spectrum say repealing the benefit reductions is a bad idea — essentially for the reasons that they were first implemented.
But the Urban Institute, a left-leaning think tank, says it’s more than just double-dipping that’s a concern. Social Security is what’s known as a progressive system — the less earnings you have, the more Social Security gives you. And if your income for some years is zero — say, if you’re working in a non-Social Security job, like for the state of Alaska — you wind up getting more in benefits, according to the Institute.
According to the Urban Institute’s calculations, high earners — the top 20% of incomes — would get an annual benefit increase of around $2,000, compared with $400 for the bottom fifth of the income scale.
“Ultimately, getting rid of pension offsets for teachers and other government employees would do more harm than good, favoring people with the most resources and pushing the burden of fixing Social Security’s long-term financing onto everyone else,” Urban Institute Senior Fellows Richard Johnson and Karen Smith wrote in a blog post earlier this year.
The sheer cost of repealing the reductions is also a concern for opponents — the repeal is forecast to cost somewhere around $200 billion over the next 10 years. Social Security is already forecast to run out of money sometime in 2034, and repealing the reductions would make it run out of money about six months sooner, according to the Congressional Budget Office.
Conservative Sen. Mike Lee, R-Utah, raised those concerns on the floor of the Senate.
"If Congress repeals these provisions without replacing them with a better system, we will revert to a broken model that unfairly rewards some at the expense of others," Lee said.
But at least in Alaska, advocates say the situation has changed quite significantly since Congress first enacted the benefit-reducing provisions.
"Back in the day, when we had a superior retirement program, it made sense to have a waiver, perhaps," said state House Rep. Alyse Galvin, I-Anchorage, who sponsored a resolution this year unanimously calling for the feds to repeal the Social Security benefit reductions.
For one thing, Alaska no longer has a pension system. The state ditched it in favor of a 401(k)-style retirement program back in 2006. In fact, Alaska lawmakers on both sides of the aisle have pointed to the inadequacy of the state’s retirement system for public employees — especially teachers, who have neither the opportunity to pay into Social Security nor the state’s replacement for it, the so-called Supplemental Benefits System.
"They don't want you to end up with some big windfall because our state has such a great program. Well, it turns out our state doesn't have a great program," Galvin said.
Galvin said she’s thrilled the repeal is moving forward.
Biden is expected to sign the bill before he leaves office early next year.
