Windfall Elimination and Your Retirement Future
By John Grobe
Wednesday, September 26, 2007
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. Like many other aspects of retirement rules and regulations, they 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 to repeal or revise them since then.
In fact, these two provisions do not target only CSRS employees. They apply to anyone who has earned pension benefits based on work not covered by Social Security (i.e., work from which Social Security deductions had not been withheld). This would include CSRS Offset employees and FERS employees who transferred from CSRS after having five years of civilian service (enough to entitle them to a CSRS retirement benefit).
The remainder of this article will take a look at the Windfall Elimination Provision. A future article will review the Government Pension Offset and discuss legislation about the repeal or modification of WEP and GPO.
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.
Describing how Social Security retirement benefits are computed would take up too much space here, but Social Security uses a much higher (90%) computation factor for the lowest portion of Social Security earnings. For retirees who are entitled to a pension based on work not covered by Social Security, that computation factor could be as low as 40%.
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.
We all should be getting Social Security Statements from the Social Security Administration on an annual basis. If we have already earned 40 credits, there will be an estimated benefit listed. 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 $680, cut it in half
- If the monthly benefit shown on your Social Security Statement is greater than $680, subtract $340 from it.
© 2009 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.
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