Social Security: The Windfall Elimination Provision and Government Pension Offset
By Bonnie Brown, Retiree Coordinator
How are Social Security Benefits calculated?
Social Security benefits are based on an employee's average monthly earnings adjusted for inflation. In calculating benefits, the Social Security Administration divides an employee's average earnings into three amounts and multiplies each amount by a different factor. For a worker who turns 62 in 2008, for example, the SSA will multiply the first $711 of average monthly earnings by 90%, the next $3,577 by 32% and the remainder by 15%.
What is the Windfall Elimination Provision?
The Windfall Elimination Provision (WEP) is a modification of the Social Security benefits formula. It reduces Social Security benefits for employees who did not pay Social Security taxes during all of their government work years.
Generally, the WEP applies to anyone who receives an annuity based in whole or part on employment not covered by Social Security unless he were eligible to retire by December 31, 1985, or had 30 years of Social Security covered employment. A modified penalty applies if one has between 20 and 29 years of Social Security covered employment.
How does the WEP formula work?
The first factor (the 90 percent factor) is reduced in the modified formula unless an employee has 30 or more years of "substantial" earnings, as defined by the SSA. For those who have worked less than 30 years, the factor is reduced by 5% a year for each year of substantial earnings less than 30 years to a floor of 40% for 20 or fewer years of substantial earnings. The maximum amount of the offset in 2008 can be no more than $355. The WEP formula does not apply to survivor benefits.
Is an annuitant who switched from an old retirement (FSRDS or CSRS) to the new retirement (FSPS or FERS) system subject to the WEP?
Yes, if he voluntarily switched to either the FSPS or FERS retirement system and had service prior to January 1, 1984, that was not covered by Social Security.
What is the Government Pension Offset?
The Government Pension Offset (GPO) is an offset that reduces the Social Security benefits of a spouse or survivor who also receives an annuity for work that was not covered by Social Security. The GPO reduces the amount of Social Security spousal or survivor benefits by two-thirds of the amount of the annuity. It does not apply to employees who are under the new FSPS system for at least five years.
Are there any efforts to repeal the offsets in the 110th Congress?
Yes. Rep. Buck McKeon (R-CA) introduced H.R. 82, which has 352 bipartisan cosponsors. And Senator Dianne Feinstein (D-CA) introduced S. 206, which has 38 cosponsors. Approximately 635,000 beneficiaries are subject to the WEP and more than 335,000 beneficiaries are affected by the GPO. The repeals would cost about 60 billion dollars over a ten-year period.