Thank you for your help on the GPO. I'm learning how any single SS document can be misleading. The POM you mentioned seems to simply and clearly answer the question. But it turns out there are other POM's on the GPO that give a more nuanced, updated and different answer. POM 400 sand IRS pub 963 say that there are exclusions and exemptions to the GPO for optional savings plans, if they meet certain conditions. Other things covered in the POM mentioned have also been changed. The problem is that there isn't an official single document addressing the GPO. Qualifiers, fact sheets, guides, references, exclusions and exemptions as to how it works are scattered over an uncatalogued list of different documents. Without reconciling differences or incompleteness of one versus another no wonder these cases end up in court and cost a lot of time and tax payer money. I guess this isn't going to change because we are going to the arsonists to ask for fire protection.
Yes, I agree that the Social Security regulations are extremely complex. And, the Government Pension Offset (GPO) provision is particularly confusing. Each pension program and retirement system outside of the Social Security system have their own individual rules, and must be analyzed virtually on a case by case basis in order to determine how they should be treated for GPO purposes.
In your wife's case, if you've found any references from Social Security's operations manual that lead you to believe that part of her pension should be exempt from GPO, she may want to go ahead and file an appeal in order to have a fresh set of eyes look at her case.