Social Security Windfall Elimination Provision Explored

The Congressional Research Service (CRS) has updated “Social Security: The Windfall Elimination Provision,” its publication that discusses what the WEP is, how it works and recent developments affecting it.

The WEP is a modified benefit formula that reduces the Social Security benefits of certain retired or disabled workers who also are entitled to pension benefits based on earnings from jobs that were not covered by Social Security and not subject to its payroll tax. The WEP’s purpose is to remove an unintended advantage or “windfall” that these workers would otherwise receive due to the interaction between the regular Social Security benefit formula and the workers’ relatively short careers in Social Security-covered employment.

The WEP affected nearly 1.9 million people — approximately 3% of all Social Security beneficiaries — in December 2018, the CRS reports. State and local government employees covered by alternative staff-retirement systems, as well as most permanent civilian federal employees hired before Jan. 1, 1984 who are covered by the Civil Service Retirement System (CSRS) comprise most of those beneficiaries.

How it Works

The WEP applies to benefits payable to retired or disabled workers who meet the criteria for its imposition and to their eligible dependents; however, it does not apply to benefits payable to survivors of deceased insured workers. The WEP does not apply to

• federal employees performing service on Jan. 1, 1984, to whom coverage was extended on that date under the Social Security Amendments of 1983 (P.L. 98-21);
• employees of a nonprofit organization who were exempt from Social Security coverage on Dec.31, 1983, and who became covered for the first time on Jan. 1, 1984, under P.L. 98-21; and
• workers who attained age 62, became disabled, or were.

Under the WEP, the 90% factor in the first bracket of the Social Security benefit formula is reduced to as low as 40%. The effect is to lower the proportion of earnings in the first bracket that are converted to benefits.

Following is an example that illustrates how the regular benefit formula and the WEP work in 2019 for someone with a 40% factor, a hypothetical scenario involving a primary insurance amount for a worker with average indexed monthly earnings of $1,500 who becomes eligible in 2019 and has 20 years of substantial coverage.

 

Regular Formula	WEP Formula
90% of first $926 = $833.40	40% of first $926 = $370.40
32% of earnings over $926 and through $5,583 = $183.68	32% of earnings over $926 and through $5,583 = $183.68
15% over $5,583 = $0	15% over $5,583 = $0
Total before rounding = $1,017.08	Total before rounding = $554.08
Rounded down to the nearest 10 cents = $1,017.00	Rounded down to the nearest 10 cents = $554.00

The CRS also illustrates that the WEP phases out as a worker approaches 30 years’ tenure on the job, to $0 at 30 years, since the WEP does not apply to workers with 30 or more years of substantial employment covered under Social Security.

 

Years of Social Security Coverage	First Factor in Formula	Maximum Dollar Amount of Monthly WEP Reduction for Workers who First Become Eligible for Social Security in 2019
>20	40%	$463.00
21	45%	$416.70
22	50%	$370.40
23	55%	$324.10
24	60%	$277.80
25	65%	$231.50
26	70%	$185.20
27	75%	$138.90
28	80%	$92.60
29	85%	$46.30
30>	90%	$0.00

 

Pros and Cons

The supporters of the WEP, says the CRS, argue that it is a reasonable means to prevent overgenerous payments and unintended benefits to people who have earnings not covered by Social Security and receive pensions from noncovered work.

WEP detractors, however, argue that the WEP:

• substantially reduces a benefit that workers may have included in their retirement plans;
• reduces benefits disproportionately for lower-earning households; and
• is an imprecise way to determine the actual windfall when applied to individual cases.

Recent Developments

Recent legislation has generally proposed either to eliminate the provision for all or some affected beneficiaries, or replace the current-law provision with a new proportional formula based on past earnings from both covered and noncovered employment.

These bills include:

 

Bill	Introduced by	Would
Social Security Fairness Act of 2019 (H.R. 141)	Rep. Rodney Davis (R-IL), on Jan. 3, 2019; Sen. Sherrod Brown (D-OH) on Feb. 14, 2019	Would reduce the Social Security benefits paid to spouses and widow(er)s of insured workers if the spouse or widow(er) also receives a pension based on government employment not covered by Social Security. The elimination of the WEP and GPO would apply to benefits payable for months after December 2019.
Social Security Fairness for Firefighters and Police Officers Act (S. 710)	Sen. Pat Toomey (R-PA) on March 7, 2019	Would exempt certain firefighters and police officers with five years of qualified service from the WEP and the GPO
Equal Treatment of Public Servants Act (H.R. 3934)	Rep. Kevin Brady (R-TX) on July 24, 2019	Would replace the WEP with the new proportional formula for individuals who would become eligible for OASDI benefits in 2022 or later. Individuals becoming eligible between 2022 and 2060 would receive the higher of their benefit under the current-law WEP or the proportional formula. Also would provide a rebate payment starting in 2022 for workers (up to $100 per month) and their dependents (up to $50 per month) affected by the current WEP.
Public Servants Protection and Fairness Act (H.R. 4540)	Rep. Richard Neal (D-MA) on Sept. 27, 2019	Would replace the WEP with the new proportional formula for individuals who would become eligible for OASDI benefits in 2022 or later. All individuals becoming eligible on and after 2022 would receive the higher of their benefit under the current-law WEP or the proportional formula. Also, as under current law, workers with 30 or more years of substantial earnings and those not receiving noncovered pension benefits would be exempt from the WEP. Also would provide a rebate payment starting nine months after enactment for retired-worker and disabled-worker beneficiaries affected by the current WEP (up to $150 per month), but not for their dependents. The proposal’s cost would be covered by transfers from general revenues.

 

At the time of this report, CRS reprots that Congress had not acted on any of these bills.