Don’t Get Blown Away by the Windfall Elimination Provision

Only about 2.5 percent of people who receive Social Security are impacted by WEP, but that impact can be significant. Adviser Erik Brenner explains.
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By Erik Brenner

Do you know what the Windfall Elimination Provision (WEP) is and how it might affect you, if it affects you? Only about 2.5 percent of people who receive Social Security are impacted by WEP. That’s roughly one and a half million people, so most of you don’t have to worry about it.

But if you ever worked in a job where you didn’t pay into Social Security because you worked for the government and were receiving an alternative pension, you may have to deal with WEP. And, if you don’t plan for it, you may be expecting more money from the government during your retirement than you will actually receive. It could be a few hundred dollars less per month. Some people don’t find out about it until they apply for Social Security.

Erik Brenner

Erik Brenner

If you think your benefits might be reduced by WEP you can check out the SSA WEP Calculator to determine a more accurate estimate of your benefits.

Congress passed WEP in 1983 to reduce Social Security payments to people who worked in positions that were covered by Social Security, as well as so called non-covered positions that provided alternative pension coverage. If you’re entitled to a pension from a job not covered by Social Security and if you also qualify for Social Security because you worked in a job for at least ten years that was covered by Social Security, your benefit may be reduced under WEP. According to the Social Security Administration, the law was passed to ensure equality among people who worked and paid into Social Security for 30 years, and those who didn’t but still qualified for Social Security because they worked at least ten years in a Social Security-covered position.

Professions that are most often impacted by WEP are teachers, police officers, and firefighters who work in states where government workers do not pay into Social Security. Currently those states include Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas. There are some exceptions, but government employees in all the other states now pay into Social Security. Military workers have always paid into Social Security so those who are eligible for a military pension along with Social Security have never been affected by WEP.

On January 1, 1984, all federal employees began paying into Social Security. They also pay into the Federal Employees Retirement Systems (FERS). They will receive Social Security and their other pension without any reductions by WEP. It’s the same for people who work for private companies who always paid into Social Security. They, too, can receive their private pension and full Social Security benefits without any reductions.

However, federal workers hired before January 1, 1984, paid into the Civil Service Retirement System (CSRS) but did not pay into Social Security. Those workers will not receive Social Security benefits unless they switched to the FERS system or had a different job in which they paid Social Security taxes. If they switched to FERS or had another job covered by Social Security, their benefits will be subject to WEP.

In addition, if you have earned a pension other than Social Security and want to apply for Social Security benefits earned by a spouse you should be aware of the Government Pension Offset (GPO)

The GPO will reduce the spousal benefit you would receive by two-thirds. The intention is similar to WEP, but GPO only impacts people who receive a pension other than Social Security and then file to receive spousal or survivor benefits through Social Security. It’s a significant reduction (two-thirds) in the amount you thought you might be eligible receive.

So, just to be clear. If you have earned a government pension that does not automatically mean you will be impacted by WEP or GPO. These days most state and local government jobs that provide an additional pension also pay into Social Security. WEP will only be applied to your benefits if you worked in a job where you received a pension but did not pay into Social Security. Then, you must have also had a job in which you paid into Social Security for at least ten years. It only applies to people who are eligible for both pensions.

If you are in a job that has a pension plan but is not covered by Social Security, the employer should let you know. You can also check your pay stub to determine if you are paying Social Security taxes. Again, WEP only affects 2.5 percent of the population so there is a very good chance you won’t have to worry about it.

Republican Senator Ted Cruz of Texas has introduced legislation to repeal WEP. It’s called The Equal Treatment of Public Servants Act of 2020 and it’s similar to a law introduced in the House recently by Republican Congressman Kevin Brady of Texas. Both proposals claim the WEP formula is unfair and they have proposed different formulas for allocating the benefits that they claim are more fair. Similar legislation has been proposed in the past but has failed to get enough support.

About the author: Erik Brenner

Erik Brenner is the president and founder of Hilltop Wealth Solutions in Mishawaka, Ind. He is a certified financial advisor who has been in the business since 1993, and he believes strongly in a holistic approach to financial planning. Brenner is also certified as a national social security advisor and he hosts a weekly TV show called “Your Wealth Health” on the Fox affiliate in South Bend, IN.