What is it and is it fair?
There is much discussion as to whether the Social Security Windfall Elimination Provision (WEP) is fair. The WEP provision was signed into law on April 21, 1983. This article is not written to sway your opinion one way or the other but to share the theory behind this provision. If you are reading this article, you already know that this provision may affect you. Very briefly, this provision affects only your Social Security benefit if you qualify for Social Security benefits and qualify for benefits as a federal, state, or local public employee. These public pension benefits received by you are not covered by Social Security and are considered by Social Security as a non-covered pension benefit. This provision does not specifically apply to your spouse or any other family member although it will affect the benefits available to them based on your Social Security record. This provision also does not affect survivor benefits.
The calculation of the monthly Social Security benefit is designed to provide a low-wage earner with a higher monthly benefit as a percentage of their total earnings. You could say this is the social aspect of Social Security. Take for example a teacher earning $75,000 a year under another government pension system not covered by Social Security and earning $25,000 a year in the Social Security system. In reality, this person’s total earnings are $100,000 a year. When this person applies for their Social Security benefit, what do they look like to Social Security? They look like a person earning $25,000 a year, which they are not. If the $100,000 was all earned in the Social Security system, although the monthly benefit would be higher, the monthly amount as a percentage of the total income would be lower. The Windfall Elimination Provision (WEP) is designed to calculate your Social Security benefit as if all your earnings are covered under Social Security. The $25,000 of Social Security wages is considered added on top of the $75,000 as opposed to being the first $25,000 earned. By doing so, the $25,000 Social Security earnings is subjected to a reduced factor in the formula as if all your wages were earned in the Social Security system because you are not a low-wage earner. So, I ask you, is this “fair”? You are the judge of that, but at least now you know the rationale behind this provision.
Below is a list of other relevant factors to take into consideration in relation to the Windfall Elimination Provision (WEP):
- The WEP does not become effective until you start to collect the non-covered government pension
- A private pension has no impact on the WEP
- The maximum WEP reduction in 2023 is $558
- The maximum WEP reduction is applicable to people who have less than 20 years of “substantial earnings” in the Social Security system
- The WEP reduction phases out each year by 10% between years 20-30
- The WEP reduction totally phases out if you have 30 or more years of “substantial earnings”
- The WEP will never reduce your Social Security benefit to zero
- The limit to the WEP reduction is 50% of the non-covered pension