The Social Security Act originally excluded government employees because of concerns about the federal government’s right to require states to pay Social Security taxes. Many government employees never work under SSA or work very little, yet receive benefits from the SSA program through their own or their spouses’ SSA benefits. Congress amended the Social Security Act in 1977 and 1983 to create the government pension offset and windfall elimination provisions. Under these amendments, state employees who did not pay into Social Security at their state jobs may receive limited SSA benefits. The provisions involve only pensions such as state retirement that the recipient earned, not dependent or survivor benefits on the account of a state employee.
Windfall Elimination Provisions
The windfall elimination provision (WEP) affects SSA beneficiaries who are eligible for both Social Security and state retirement or disability pensions based on their own earnings. The provision modifies the advantage SSA gives to individuals who may have worked many years under SSA at low-paying jobs. To calculate retirement benefits, the SSA averages the highest 35 years of earnings. The average is divided into three tiers based on national average earnings. As of 2010, the first tier is $761. SSA multiplies it by 90 percent and the remaining tiers by smaller percentages. The sum of the results equals the full monthly benefit. For the WEP, SSA computes benefits using only 40 percent of the first tier, causing a current WEP reduction of $380. The WEP changes yearly as national average wages change.
WEP and Retirement
A Social Security recipient retiring at full retirement age, which is 66 as of 2010, receives no reduction for age. However, the WEP reduces the full benefit by $380. If the full benefit is $1,500, the WEP benefit is $1,120. The WEP offset calculation changes if the worker applies for reduced benefits. A worker retiring at age 62 instead of 66 would receive 75 percent of $1,500, or $1,125 without the WEP. When the WEP applies, Social Security will apply the 25 percent reduction to the WEP unreduced benefit of $1,120 to ease the severity of the benefit reduction. The retirement benefit at age 62 with the WEP is $840.
Disability Windfall Provisions
The WEP does not affect individuals eligible for SSA disability before 1986, even if the disability ended, provided it ended less than 12 months prior to reaching age 62. Sometimes SSA disability beneficiaries receive a workers' compensation award, either as a lump sum or monthly amount. Receipt of workers' compensation offsets SSA disability but not retirement benefits. If a worker is also subject to WEP, both offsets apply, further reducing the disability benefit. If the disabled worker turns age 62, she has the option to switch to Social Security retirement benefits. The SSA reduces the retirement benefit for age and WEP, but the result may still be higher without the offset for workers' compensation.
Government Pension Offset
The Government pension offset applies to SSA beneficiaries who receive benefits based on the account of a spouse rather than their own record. The SSA deducts two-thirds of the government pension from the Social Security benefit payable. If the state pension is $2,100, the SSA will deduct $1,400 from the SSA benefit. A woman eligible for a widow’s benefit of $1,500 would receive only $100. Applicants cannot avoid the offset by withdrawing their contributions to the state pension fund instead of collecting the monthly benefit. The SSA will offset benefits based on what the monthly pension would have been.
The WEP does not apply to workers who have minimum earnings under Social Security for at least 30 years. The earnings amounts are available on SSA's website. The WEP decreases incrementally for workers with 21 through 29 years of minimum work under SSA. The WEP benefit amount also results in lower dependents benefits unless the worker dies. Then the SSA calculates all survivor benefits without the WEP. The government pension offset does not apply when the state employee's job was covered by Social Security for the last 60 months of employment.