The Social Security Administration’s Windfall Elimination Provision
Posted on Thu, 30th October, 2008 by Jeremy
This is a guest post by Tanesha Morgan, writer for Personal Finance Analyst. Personal Finance Analyst is an online community of bloggers dedicated to taking the mystery out of money and helping you to live a happier, more successful life with the money you have.
The Windfall Elimination Provision (WEP) has been around since the Regan Administration, but most people never learn about this provision until it is too late. The WEP is a provision in the Social Security law that serves to prevent retirees from getting a “windfall” of money from the federal government. I’ll get back to the term windfall in a moment. But first… how does this provision work?
The formula used to calculate a person’s social security benefit is based of several factors, but I’ll try to use a simplified scenario. If a person paid social security taxes for 25 years, then he may be eligible for 90% of his average monthly earning. However, if that person is subject to the WEP, he’d only be eligible for 40% of his benefits.
Who is Usually Affected by This Provision?
Generally, people who have made career changes will be affected… if that change involves moving from a social security covered position to a non social security covered position.
For example a teacher … public school teachers in many states contribute to a state or local government retirement system and are exempt from paying social security taxes. But if after 20 years (which is long enough to be eligible for the state or local government retirement benefit), our teacher may decide that he wants a career change.
He moves on to a position which is covered Social Security. If he stays in that position for about 10 years, then he is eligible for Social Security benefits.
Fast forward to our teacher’s 62nd birthday… he goes down to the Social Security office to apply for his Social Security benefits. The worker figures out his benefit and then informs him that that benefit is going to be reduced nearly 50% because he is already receiving a retirement pension from another government.
This reduction prevents our teacher from getting a “windfall” of money from the government. Windfall… I really have an issue with that term. So instead of him being about to buy 2 loaves of bread with his social security check, he can only buy 2 slices. **shaking my head**… Windfall?!? Give me a break!
I think this WEP is completely unfair. If a person has worked long and hard enough to be eligible for two government pensions… then why should he be punished? He earned the pension… so give it to him. Two government pension checks do not equate to a windfall… no matter how you add it up.
For those non-Social Security covered state and local government employees, the WEP acts an inhibitor… preventing them from moving into private sector jobs.
Well, I suppose it only inhibits those who are aware. Most people are not even aware that this provision exists. Many first learn about it when they apply for their Social Security benefits… which by this time is too late because they have not planned for this benefit reduction.
Just about every year, one or two bills are proposed to Congress that would repeal this WEP… but every year it is either not heard or voted down.
The WEP has been in law more than 20 years, so chances are it will not disappear. Therefore I thought it was important to alert my fellow financially conscious friends that this provision exists. Hopefully, you aren’t depending on Social Security to take care of you during retirement, but in case you are… plan ahead and beware of this provision.
I get your point except that SS is not a pension plan. All kinds of things reduce the SS retirement benefit, including taxes and other income you receive. I think the double taxation is worse than the windfall provision.
There is yet another provision called SSIP. It stands for Social Security Insolvency Plan and the way it works is as follows: When a person aged 30 today retires in 35 years, he/she will go to the social security office and find a sign reading: Sorry, We’re Closed Due to Insolvency.
At which point you’ll realize you won’t be getting a dime from social security.
Mr. SS - That is not going to happen unless SS becomes means tested. If so, and you have money saved, SS probably won’t give you any of its money.
I think the point is that you’re not paying into social security while you are employed by a local government and paying into your pension, so why should you be entitled to receive a social security payment as well? I work for a local government and am exempt from SS, and if I were to stay long enough to collect a pension I certainly wouldn’t feel entitled to a full SS payment on top of that.
It’s good that you got this out there. Folks need to be careful not to expect this. And be careful because a state pension is exposed to state political and financial risks. (Rumors abound that the states might freeze COLA, for instance.)
The good news is that most state and local jobs include a pension (which is supposed to be more generous than SS) and also allow for a 403b. (The bad news is that teachers’ 403b plans are riddled with annuities that were sold to the state agencies and unions!)
We also have to remember that the point of social security is to provide a safety net so we don’t have another _Cannery Row_. But it really isn’t a socialist program. If you already have a pension and haven’t paid into the system for a long time, you can’t expect to get a lot of benefits.
As way of comparison of the risks: I once worked for a fortune 500 company that 1) converted a defined benefit plan into a cash account plan, 2) nuked the retiree heath insurance program, 3) eventually placed rules on the cash account plan that made me ineligible because I left a month before full vesting. And I got a good deal compared to the retirees. SS isn’t that draconian, there would be an uproar.
I do sympathize with those who weren’t in the know. As someone who worked for the state for a few years, I wish state and local governments weren’t exempt from SS, which would clear up this mess.
GovEmployee makes a good point that they are not actually paying into social security so why would you receive the full benefits. It does suck when somebody retires planning on a certain amount of money and gets a cut in the amount they will receive.
Here in California, a lady retired after 20 years with the state, and now receives an 85% pension pay, not bad at all. She’s living the life in Beliz
Actually, to be perfectly honest, this seems like a very valid rule to me. The purpose of social security is to create a minimal income level for individuals, not to allow folks to collect duplicative payments from multiple government sources.
In this state, a teacher can retire, stay out of work 6 mos, then go back to teaching and draw her salary plus full retirement. This was supposed to have been temporary, but due to teacher shortage, it keeps being extended. So, I think the example of a teacher for WEP is a poor one. I think the rule affects very few people, so called “double dippers”
I would not call it double dipping. If a person contributes to Social Security for 10 years, then his benefits will only reflect 10 years of contributions… which is probably less than 15 percent of his salary. The WEP cuts that 15% by half. It’s not a fair provision. It robs folks of benefits that they rightfully earned.
What I don’t understand is why any COLA’s rec’d from
a prior job and attached to a yearly pension, that was
voted on by the governmental agency would be penalized
by the social security administration every five years.
I am a retiree from a county agency and have been living
in retirement for seven years and I feel that I have been treated unfairly by SSA after working in other jobs for over forty years, many of which contributed to
social security benefits and I am receiving such a small
amount from SSA due to the fact that the last place of
employment, (the county) did not contribute to Social
Security. I was immediately upon applying for Social Security at age 62 and a half years of age, penalized
by 20% of my normal earned benefits, and then again due
to the fact that my last employer did not pay into SS,
was docked another 20% from my benefits. This left me
with a very minimal amount of income to try to live on
monthly aside from my minimal pension benefit as I only
worked eleven years at my last place of employment. Needless to say, this COLA comes in handy each year as
it makes somewhat of a difference in my struggle to get
by. However, SSA finds it necessary to also feel free
to attach this with the explanation that they have paid
me too much when some calculation they come up with shows they payments exceeding what I normally would have rec’d had it not been for the Cost of Living Allowances I receive each year which only amounts to $27 more per month. Can someone explain to me why is
this necessary to penalize me for this also. I’m truly
puzzled. Combined, my pension and my social security benefits only amount to $900 per month. This makes it very difficult to live what with rent and buying food and all. I feel that the purpose for the COLAs is to
enable people who retired with limited income to have some relief from their struggle to make ends meets.
What nobody seems to understand is that if you worked for the government for 20 years and paid a FULL share into their MANDATORY retirement system and you worked for 20 years and paid a FULL SHARE into the MANDATORY social security system, then you should be ENTITLED to a FULL SHARE of your rightfully earned social security benefits!!! We have been fighting this with our congressmen and senators, but no one cares because they are waiting for all of us to DIE!!! Start speaking up now if you are also affected by this.
That’s all the damn politics and why SS is doing so?
This law is very unfair. My husband was in the military for over 21 years, where he paid into Social Security. Then he went to work at a sheriff’s office that would not allow him to pay social security.
I worked various job through out his career and was able to get 15 years into the Social Security System. In 1980 I took a state job and retired in 1995.
When we applied for SS benefits both of our checks were greatly reduced.
This will make you laugh, I get 386.00 a month from the State so they deducted that from my social security check and I receive $114.00 from SS. Can anyone live on that?
We were not told about this windfall(LOL)tax and based our retirement on the facts that our government sent us each year.
My husband’s SS check was cut too and he receives a little over $500.00 for almost 27 years of ss payments.
You can say what you want but I think that it is ashame that we treat our people this way. You work all of your life and are told you would get x amount of money. Then when the time comes they change the rules.
When I joined SS in the 1960, my contract with the Government was explained to me. I do not know how they can come back more then twenty years later and change the contract.
American’s beware this can happen to you too. Be sure you understand your benefits.
I may have made different career choice is I had known about this law. But I was not given the opportunity to make that choice. The government did not tell me of this law until I applied for benefits. I feel this is very unfair.
All those interested in WEP need to check out the WEP calculator at http://www.fedbens.us . It not only figures out exactly what the WEP reduction is in individual cases, it also provides a pretty good tutorial on how WEP works. (Also, it does the same for the Government Offset Provision.)
Check it out!
i may be wrong but it appears govemployee & pays to live grn may be under a misassumption here. retirees get no windfall of extra $ under SS. you get no SS unless you have worked enough qtrs to EARN it. What happens under WEP is if you earned SS but also get a public pension your SS is cut by way more than half (& sometimes to 0)of what it would be otherwise because you get a pension.
is that fair? you earned SS by paying into it while working under SS why should you not receive a benfit like anyone else? Thats why it is unfair. i dont want more but i do feel entitled to what i earned by paying into SS
I worked ,under s.s. long enough to draw $610.00 a month at age 62, according to S.S.A. When I filed for s.s., I was told that under the WEP rule I would draw $359.00 a month,which I’m drawing. Now I think our elected officials shafted me & many others. I think that if they are going to shaft us, we at least should get kissed, also. REPEAL WEP/GPO NOW!!!!!!!!
I have two questions. If a spouse of a teacher pays into Social Security for their entire working career (30+ years). Does the teacher receive any benefits if the spouse dies?
Does the state have the right to repeal this federal law that was sponsored by Mr. Barney Frank?
Your blog hit the nail right on the head about this rip-off being an unexpected surprise. I just turned 65 and was forced to retire here in the European country where I have lived and worked as a teacher for the past 16 years. My government pension from this country is only going to be 56% of my salary or 780 euros after taxes, because I didn’t work enough years here to be entitled to more before they legally dumped me. This ($1050 approx) is not nearly enough to live on anyplace, but I figured that the paltry $754 a month (500 euros or so depending on the exchange rate) of SS bennies from my prior years of working in the USA would almost make up the difference of my prior earnings. That was until I applied for my benefits and they told me about WEP. Surprise!!!
I did the calculation with their calculator and discovered that my SS benefit is now only going to be $416 or 306 Euros!!!! WTF can you do with that??? Live under a bridge and eat dogfood is about it. I feel like they are forcing me to become a beggar or a thief because there is no way you can live on that amount of money anywhere.
First off what is the justification of being penalized by almost half of an already measly sum for not paying social security to the US on money that I earned overseas and paid SS on to the country here? Was I supposed to pay double SS taxes all along? Where is the logic or justice in that. How is it a “Windfall” if I paid taxes on what I earned over here just like I did back in the USA? According to tax treaties you are exempt from income tax on foreign income because you can’t be taxed by two countries, so why not the SS tax too?
Furthermore, if I hadn’t worked at all during the past 16 years, and lived in the street or by leeching off of others, I would be able to get the full SS benefit from the US. So why am I suddenly going to lose half of it just because I worked and paid SS tax to another country during that time? If I am otherwide legitimately entitled to the full amount for the work I did in the States and paid taxes on, how does that suddenly change now that the country here is paying me a lousy 50% of my salary?? Where is the Windfall if not in the pockets of our politicans?
Worse yet, because I am retiring a year before my full retirement age of 66 (through no choice of my own) I am prohibited from working more than 45 hours a month during this year or I will lose my US SS benefit entirely. That might not be such a loss I suppose–$9/hr vs the $35/hr I can earn freelancing–except for the fact that unlike in the US, you can’t legally work while you receive a pension in this country and if you do, your earnings reduce your pension correspondingly. So it’s a lose/lose situation all around. The pension here used to be a real income and was intended to open up the job market to the younger generation, but that is only really true if you worked 45 years at a high paying job. More recently many retirees have been forced into working illegally off the books, which puts them in jeapordy of being busted for non-payment of taxes and of losing their pensions outright.
It is all very upsetting at getting a royal screw-job from both sides and feel very angry about it, particularly at the US government for once again benefiting the rich while throwing the rest of us to the wolves.