The Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) are two provisions of the Social Security law that affect Social Security benefits to which CSRS retirees may be entitled. The WEP can apply to CSRS Offset and FERS Transferee retirees as well. The GPO will not apply to CSRS Offset and FERS Transferees once they have worked for 5 years under CSRS Offset or FERS.
Like many other aspects of retirement rules and regulations, the Windfall Elimination Provision and the Government Pension Offset can cause a good deal of confusion among current and prospective CSRS retirees. Consider the names themselves:
- The Windfall Elimination Provision does not eliminate a Social Security benefit to which you are entitled on your own earnings record. It will, however, generally drastically reduce it.
- The Government Pension Offset’s offset of any Social Security benefit to which you would be entitled on the earnings record of another is usually so severe that it completely eliminates such benefit.
These two provisions were introduced in the 1980′s in an early attempt to shore up the Social Security system and public employee supporters in Congress have been trying (with absolutely no success) to repeal or revise them since then.
The remainder of this article will take a look at the Windfall Elimination Provision. A future article will review the Government Pension Offset.
The Windfall Elimination Provision affects only Social Security benefits to which you are entitled based on your own earnings record. As long as you have earned 40 credits (formerly known as quarters of coverage) you will receive some kind of Social Security benefit.
The Social Security System has a need-related component that is designed to replace a much greater portion of a low wage earner’s income than that of the high wage earner. CSRS employees, and others who have earned a retirement benefit based on work that was not covered by Social Security, most likely have many years in their Social Security earnings record where they had little or no employment covered by Social Security. They would look like a low wage earner to the Social Security system, even though they had been working at a good job and earning a pension the entire time.
Social Security benefits are based on your lifetime earnings. The following is how they are computed in 2014.
- Your lifetime earnings are indexed for inflation.
- The highest 35 inflation indexed years are added together.
- The total is divided by 420 (the number of months in 35 years) to arrive at average indexed monthly earnings (AIME)
- AIME is multiplied by:
- 90% x the first $816
- 32% x $817 to $4917
- 15% of the amount over $4917
If you are affected by the WEP, the multiplication factor for the first “bend point” above will be less than 90%. How much it is reduced depends on how many years of substantial earnings under Social Security. If you have 20 or fewer years of substantial earnings (most of us CSRS folks) your benefit will be computed using the 40% factor. For years over 20, the factor increases by 5% a year until it reaches 90% after 30 years. A Social Security Factsheet on the WEP is available here and has a chart on what constitutes substantial earnings.
CSRS Offset and FERS Transferees should be aware that they must meet the same 30 years of substantial earnings test in order to avoid the WEP. The fact that they are in CSRS Offset and paying into Social Security now will not give them a pass. If you’re CSRS Offset or a FERS Transferee, compare your earnings record with the substantial earnings chart to determine your years of substantial earnings.
A few of us receive Social Security Statements from the Social Security Administration on an annual basis. The rest of us can obtain a Social Security Statement by going to the Social Security website and signing up for Social Security Online; that will allow us to access our most current statement. If we have already earned 40 credits, there will be an estimated benefit listed on the statement. Unfortunately, the SSA computers do not know that we are CSRS employees who are subject to the WEP. You can go to the Social Security website and use their WEP calculator, or you can try this computation:
- If the monthly benefit shown on your Social Security Statement is less than $816, cut it in half
- If the monthly benefit shown on your Social Security Statement is greater than $816, subtract $408 from it.
