Windfall Elimination Provision – WEP and Social Security

Windfall Elimination Provision Under Social Security Law

The windfall elimination provision, or WEP, is one of two key provisions that can affect your annuity or Social Security Benefit – another is the Government Pension Offset. And if you continue working after beginning to draw Social Security benefits you also may be affected by the Earnings Test.

Virtually all CSRS/CSRS Offset employees (and some FERS employees who will have a CSRS component in their annuity) who reach age 62 after 1985 and are eligible for a pension based in whole or part on work where they didn’t pay Social Security taxes will have a lower formula used to calculate their Social Security benefit. Only those with 30 or more years of substantial earnings under Social Security will receive the full benefit. Anyone with fewer years of substantial earnings will receive proportionately less.

The WEP was designed to eliminate the “windfall” that could result if you were to receive a CSRS annuity based on many years of employment not covered by Social Security and also receive a full Social Security benefit because you did have a few years of Social Security-covered employment.

Social Security benefits are based on your average monthly earnings. When it comes time for Social Security to calculate your benefit, it divides that earnings amount into three parts. The first segment is multiplied by 90 percent, the second by 32 percent and the rest by 15 percent.

For those who have less than 30 years of substantial earnings, the first multiplier is reduced by the WEP. For each year less than 30 years of substantial earnings, the multiplier is reduced by 5 percent per year. The floor beneath which no further reduction is made is 20 or fewer years. The maximum reduction works out to nearly $450 a month.

The Substantial Earnings Under Social Security table shows the earnings needed per year for a year to qualify for exemption from WEP coverage.

Note: The WEP provision includes a guarantee designed to help protect workers with relatively low pensions based on non-covered employment. This guarantee provides that the reduction in Social Security benefits can never exceed one-half the amount of the pension based on non-covered work.

The substantial earnings figure, $24,675 in 2019, is adjusted for national wage growth each year.

Social Security Reduction Factors

Years of Social Security Earnings – First Factor

30 or more – 90%

29 – 85%

28 – 80%

27 – 75%

26 – 70%

25 – 65%

24 – 60%

23 – 55%

22 – 50%

21 – 45%

20 or less – 40%

 

Example 1:

Retiree with 30 or more years of substantial earnings

AIME:   $6,000

.90 x $926               =              $833.40

.32 x $4,657            =              $1,490.24

.15 x $417               =              $62.55

PIA:                                        $2,386.19 (40 percent of the AIME)

 

Example 2:

Retiree with 25 years of substantial earnings

AIME:   $6,000

.65 x $926               =              $601.90

.32 x $4,657            =              $1,490.24

.15 x $417               =              $62.55

PIA:                                        $2,154.69 (36 percent of the AIME)

 

Example 3:

Retiree with 20 or fewer years of substantial earnings

.40 x $926               =              $370.40

.32 x $4,657            =              $1,490.24

.15 x $417               =              $62.55

PIA:                                        $1,923.19 (32 percent of the AIME)

 

While the modified formula is used in computing Social Security retirement and disability benefits, it is never used to compute any Social Security benefits due to your survivors upon your death.

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