H.R. 743, the "Social Security Protection Act of 2004," was passed by Congress on February 11, 2004 and signed into law by the President on March 2, 2004. (P.L. 108-203).

The law contains a provision that eliminates the "last day covered employment exemption" to the government pension offset (GPO). The GPO provision reduces the amount of a spouse’s or surviving spouse’s benefit by two-thirds of the amount of that person’s government pension if the person was employed by the government and the employment was not covered by Social Security. Previously, an individual was exempt from the GPO if his or her last day of government employment was in a job covered by both Social Security and the government pension system. 

The law requires that the last 60 months of a person’s government employment before retirement be covered by Social Security and the pension system in order to avoid reduction under the GPO.[1] 

• Requires that State and local government workers be covered by Social Security throughout their last 60 months (5 years) of employment with the pension-paying government entity in order to be exempt from the GPO provision, instead of just their last day of employment.
• Provides for a transition for workers whose last day of government employment occurs within 5 years after the date of enactment. For those workers, the requirement that their last 60 months of government employment be covered by Social Security will be reduced (but not to less than one month) by the number of months in total that the worker had in covered government service under the same retirement system before the date of enactment. If the 60-month period is reduced, the months of service needed to fulfill this requirement must be performed after the date of enactment.
• Effective for applications filed after the month of enactment (i.e., after March 31, 2004). However, the change would not apply to applications filed after the month of enactment if the worker's last day of government employment occurs before July 1, 2004. .

The legislation modifying the GPO exemption was enacted on March 2, 2004

The effective date provisions will apply as follows:

Any current Social Security beneficiary who is receiving Social Security spouse's or surviving spouse's benefits and does not have the GPO applied because of the last day of covered employment exemption would continue to receive their Social Security benefits without the application of the GPO.

Any State and local government worker who applied for Social Security spouse’s or surviving spouse’s benefits before April 2004 would avoid the GPO reduction if their last day of government employment was covered by both Social Security and their pension system (regardless of when that "last day" occurs).

Any State and local government worker whose last day of government employment was before July 1, 2004 and whose last day of employment was covered both by Social Security and their pension system would not have the GPO applied to their future claim for Social Security spouse's and surviving spouse's benefit.  For example, a teacher whose last day of government employment in June 2004 was covered under Social Security and the pension system would be exempted from the GPO regardless of when he/she filed for benefits.

Any State or local government worker whose last day of government employment occurs within 5 years after the date of enactment (before March 2, 2009) could qualify for a reduction in the requirement that the last 60 months of government employment be covered by Social Security. For these workers, the "last 60 months" requirement can be reduced (but not to less than one month) by the total number of months that the worker had in covered government service under the same retirement system before the date of enactment. If the 60-month period is reduced, the remaining months of service needed to fulfill the requirement must be performed after the date of enactment.

For example, consider a teacher who was working in a non-covered position at the time of enactment but had previously worked in a covered job in the same retirement system for 12 months in 1997. Because she had previously worked in covered employment for 12 months, the requirement that her last 60 months of employment be in a covered position would be reduced to 48 months, or four years. If she began working after enactment in covered employment under the same retirement system as her prior government work, AND worked in the covered position for at least the final 48-month period of her employment, AND her last day of employment was before March 2, 2009, she would be exempt from the GPO offset.

For all other non-covered State and local government workers, if they first switch to government employment covered by Social Security and their pension plan after June 30, 2004, they would have to work in covered government employment for the entire final 60-month period of their government employment in order to avoid the GPO.

To further clarify how the effective date for this change to the GPO provision would affect individuals in certain situations, a series of questions and answers follows. 

1. When will this change in the "last day exemption" to the GPO provision become effective?

   Generally, the change would be effective for individuals eligible for benefits and who filed in April 2004 or later. However, the change would not apply for any worker whose last day of government employment occurs before July 1, 2004, even if the application for benefits is filed in April, 2004 or later.

2. Will the change in the law affect anyone already receiving Social Security benefits who were able to use the "last day exemption" to avoid the GPO provision?

   No. Anyone who is already receiving full Social Security spouse's or surviving spouse's benefits because of the last-day exemption will continue to receive his/her full benefit.

3. Will the change in the law affect the future Social Security benefits of anyone who worked in non-covered employment but recently retired after working their final day of government employment in a job that was covered by Social Security?

   No. Any State and local government employee whose last day of government employment was before July 1, 2004, and whose last day of employment was covered both by Social Security and their pension system, would not have the GPO applied to their future claim for Social Security spouse's and surviving spouse's benefit. This also applies to anyone who returns to work after meeting the "last day in covered employment" GPO exemption as long as no contributions are made, by either the employer or employee, to the pension plan to increase his/her annuity.

   For example, Ms. Smith plans to retire as a teacher under the Texas Retirement System (TRS) and is able to work her last day of employment in a position covered by Social Security and TRS on June 1, 2004. However, Ms. Smith plans to return to work as a part-time, substitute teacher in September 2004. Since Ms. Smith is retired, and substitute teachers are not covered under TRS and no contributions will be made to TRS, Ms. Smith can return as a substitute teacher and not lose her "last day in covered employment" GPO exemption.

4. Would the change affect those workers who either (1) retire soon after enactment or (2) are now vested for their pension but not yet eligible, if they are able to switch to Social Security-covered employment before retiring? What if they won’t be eligible for Social Security for several years?

   If their last day of employment occurs before July 1, 2004, and that last day is covered both by Social Security and by their pension system, then they can meet the exemption and avoid the GPO. It does not matter whether they would not be eligible for Social Security benefits for several years.

5. If a person, who is eligible for a Social Security benefit, files for those benefits before the change becomes effective, but delays retirement, will he/she still be able to make use of the current last-day exemption?

   Yes. Anyone eligible for Social Security spouse's or surviving spouse's benefits who filed for those benefits before April 1, 2004, can work his/her last day in employment covered by both Social Security and the pension plan and qualify for the last-day exemption-regardless of how far in the future that retirement occurs. (A person who is not yet eligible e.g., not yet age 60 for widow’s benefits could not meet this criterion by "advance filing" by March 31, 2004.)

   For example, Ms. Bailey is age 62 and works at ABC school district which is covered under TRS, but not Social Security. Ms. Bailey files for spousal benefits March 20, 2004, but continues to work at ABC school district. Five years later, Ms. Bailey decides to retire from ABC school district and finds a position at another school district that is covered by Social Security and TRS. Ms. Bailey works in the covered position for 2 weeks and retires. Ms. Bailey meets the "last day in coverage" GPO exemption because she filed for spousal benefits before April 1, 2004.

6. Would the change affect a worker who switched from non-covered to covered employment in the past and plans to remain in that covered position until retirement in a year or so? If so, would the amount of time the worker had previously spent in covered employment make a difference?

   Yes, this change would affect a worker who had switched from non-covered to covered employment in the past and planned to remain in the covered position until retirement in a year or so (unless the worker filed for benefits before April 1, 2004 see above). In order to be exempt from the offset, a worker who had switched to covered employment and planned to retire after June 30, 2004 would need to meet the requirement that the last 60 months of employment be in a position covered by Social Security. However, if the teacher retired before March 2, 2009 (five years after enactment), the last 60 months requirement would be reduced (but not below one month) by the number of months the worker had worked in covered employment prior to enactment of the legislation.

   For example, consider a teacher who switched from a non-covered position to a covered position in 2001 and worked for 24 months in that covered position. The teacher then switched backed to a non-covered position. After enactment of the legislation, the teacher again switched to a Social Security-covered position and worked in that covered position for her last 36 months before retiring in 2007. This teacher would be exempt from the GPO. Because the teacher’s last day of employment was before March 2, 2009, the last 60 months requirement would be reduced to 36 months (60 months minus the 24 months of covered employment prior to enactment).

7. Would the change affect a worker who is going to retire in 1 to 3 years?

   Most likely. The person could avoid the GPO under the "last day exemption" rule only if he or she (1) is eligible and files for benefits before April 1, 2004; or 2) changes his or her plans and retires before July 1, 2004 with the last day of employment covered by both Social Security and the worker’s pension system . Otherwise, the worker could avoid the GPO only by switching to employment covered by both Social Security and the worker’s pension system and by meeting the requirement for 60 months of employment in a covered position. The switch could occur at anytime in the future, but he/she would need to work in covered employment for the entire final 60-month period of his/her government employment in order to avoid the GPO. (See above for an explanation of how the 60-month requirement could be reduced if he/she had previously worked in a covered government position).

8. Would the change affect a younger worker (e.g., age 45) whose employment is not covered under Social Security?

   Most likely. The person could avoid the GPO only by switching to employment covered by both Social Security and the worker’s pension system and by meeting the requirement for 60 months of employment in a covered government position. The switch could occur at anytime in the future, but he/she would need to work in covered employment for the entire final 60-month period of his/her government employment in order to avoid the GPO.

9. If a person is still able to avoid the GPO by making use of the "last day exemption," will any other offset apply to his or her Social Security benefits?

[1] For simplicity, the exemption to the GPO is described here as a requirement the person’s last 60 months of government service is covered. The statutory language provides that the GPO applies if any of the person’s last 60 months of government service were not covered by Social Security.