My inbox has been flooded with emails from retired or soon-to-be retired public employees who don’t even pay into Social Security. They are writing to complain about a law called the Windfall Elimination Provision, or the WEP, that reduces any Social Security benefits they have earned while working at other jobs where Social Security taxes were deducted from their paychecks. They always tell me about bills pending in Congress that are intended to repeal the WEP, and they want me to endorse the legislation in my column. They are surprised to hear back from me with this message: “The WEP is an entirely fair and just law that should never be repealed. And shame on those self-serving members of Congress who introduce such legislation that they know has no chance of passage. They are merely seeking votes from uninformed constituents who happen to be retired public employees.” Before I explain what I am talking about, I must give some background.
When Social Security laws were enacted in the 1930s, Congress felt that they could not force a federal pension plan (Social Security) on state and local governments. So, they gave them the option of joining Social Security or not. Most did. But some did not. And still today, about 10 percent of all workers, mostly in state and local jobs in the public sector, are not covered by Social Security.
Also, federal government employees were initially not covered by Social Security because they had their own pension system in place before Social Security came along. But all federal employees hired since 1984 pay into Social Security. However, there are still some old feds out there (hired before 1984) who are not in Social Security.
Folks who spend the bulk of their careers in jobs not covered by Social Security are potentially subject to a couple of offsets that impact either their own Social Security benefit (based on Social Security-covered work they did outside of their regular job) or any benefits they might be due from their spouse’s Social Security record. There always has been a great deal of confusion and an awful lot of misinformation about those offsets.
One offset is the aforementioned Windfall Elimination Provision. This is the one that impacts your own Social Security benefit. The other is called the Government Pension Offset, or the GPO, and it reduces any spousal benefits you might be due.
The key to understanding the WEP is to realize that the word “social” in Social Security means something. Unlike private and other public sector pension plans, there are social goals built into the Social Security program. One of those goals is to raise the standard of living of lower-income workers in retirement. This is accomplished through a benefit formula that is designed to give lower-paid workers a better deal than their more highly paid counterparts. Very low-paid workers could get a Social Security benefit that represents up to 90 percent of their earnings. This percentage is known as a “replacement rate.” People with average incomes (the middle class) generally get a 40 percent replacement rate. Higher-income people get a rate around 30 percent.
The problem is that people who spend the bulk of their working lives not paying into Social Security are automatically treated as low-income people by the Social Security Administration’s computers. That’s because there are “zeros” on their Social Security earnings record for every year they spent in their non-Social Security job. The SSA’s records won’t show they were actually working at the other job and earning another pension. Instead, their Social Security earnings record simply shows gaps in their work history. So, when figuring their Social Security retirement benefit, the SSA’s computers automatically use the formula intended to compensate a lower-income person.
But teachers, police officers, firefighters, and other government employees (including those older federal employees hired before 1984) generally can be classified as people with average incomes, so they should get the same Social Security replacement rate paid to all middle-class workers. That’s why a modified formula is used to refigure their benefits and give them the proper—and fair—replacement rate. If you’re an employee affected by this law, that modified formula takes you from the 90 percent (poor person’s) replacement rate to the 40 percent (middle-class person’s) replacement rate, which usually reduces benefits by about half.
The other rule that so many public employees misunderstand is the GPO. In a nutshell, that law says that an amount equal to two-thirds of a non-Social Security-covered pension must be deducted from any Social Security dependent’s benefits a person might be due. In effect, the law prevents most folks who work at jobs not covered by Social Security from collecting benefits as a wife, widow, husband, or widower.
What these people don’t realize is that the GPO simply treats them in the same way that all other working people have always been treated. For example, if a woman who worked at a job that was covered by Social Security gets a Social Security retirement pension, that pension has always offset any spousal benefits she might have been due. Before the GPO law went into effect, people getting a non-Social Security pension were the only working people in this country who could get their own retirement pension AND a full dependent’s benefit from Social Security.
And the GPO law actually gives these people a bit of a break. Social Security retirement pensions offset spousal benefits dollar for dollar. But a non-Social Security retirement pension causes only a 3-for-2 offset. In other words, for each $3 you get in a teacher’s or other noncovered pension, you lose only $2 from Social Security spousal benefits.
The WEP and GPO laws have been in effect since the early 1980s. And bills to repeal these offsets have been introduced in every Congress since then. And every year, for the past 30 years, they have always gone down in defeat. Why? Because as I explained in this column, the laws make sense.
One final note. As an older retired federal government employee, my Social Security benefits have also been reduced by the WEP and GPO. But because I understand the laws, I have absolutely no problem with the reductions.
