So­cial Se­cu­rity Mat­ters: Wind­fall Elim­i­na­tion Pro­vi­sion

Record Observer - - Senior Satellite -

Dear Rusty: Dur­ing my first ca­reer, which lasted about 25 years, I worked for com­pa­nies that with­held So­cial Se­cu­rity FICA taxes from my in­come. In my new sec­ond ca­reer my em­ployer doesn’t take So­cial Se­cu­rity from my wages, but I’ll still be el­i­gi­ble for a com­pany pen­sion af­ter 15 or so years of ser­vice. From my co-work­ers I’ve heard about some­thing called “WEP” which could af­fect my So­cial Se­cu­rity ben­e­fits, but when they try to ex­plain it I get to­tally con­fused. Can you clar­ify? Signed: Changed Ca­reers

Dear Changed: If you work in your sec­ond ca­reer long enough to earn a pen­sion, “WEP” will, in­deed, af­fect your fu­ture So­cial Se­cu­rity ben­e­fit. WEP, the Wind­fall Elim­i­na­tion Pro­vi­sion, ap­plies to those who are en­ti­tled to a “non-cov­ered” pen­sion from an em­ployer who did not with­hold FICA So­cial Se­cu­rity taxes from their earn­ings, and who is also en­ti­tled to So­cial Se­cu­rity ben­e­fits from other em­ploy­ment which did. Since the So­cial Se­cu­rity ben­e­fit cal­cu­la­tion is weighted to re­place more in­come for lower-earn­ing work­ers, dual-ben­e­fit re­cip­i­ents were get­ting pro­por­tion­ately higher in­come re­place­ment than truly low­in­come work­ers, caus­ing Congress to en­act WEP in 1983.

So­cial Se­cu­rity’s stan­dard for­mula for com­put­ing your ben­e­fit in­cludes seg­ment­ing your av­er­age in­dexed monthly earn­ings into 3 por­tions called “bend points”, mul­ti­ply­ing each por­tion by a per­cent­age and to­tal­ing them. A ma­jor­ity of your ben­e­fit amount comes from the first bend point, which is nor­mally 90% of the first $885 of your av­er­age monthly earn­ings (for some­one ap­plyin­gin 2017). The WEP re­duc­tion is com­puted by ad­just­ing the per­cent­age used in that first “bend point” to some­thing less than 90%, depend­ing upon the num­ber of years of So­cial Se­cu­rity cov­ered em­ploy­ment you had. If you had 20 or fewer years of So­cial Se­cu­rity sub­stan­tial earn­ings, the per­cent­age used in the first bend point will be 40%, rather than 90%. If you have more than 20 years of So­cial Se­cu­rity cov­ered earn­ings, the first bend point per­cent­age in­creases by 5% for each year over 20. Since 90% is the nor­mal first bend point com­pu­ta­tion, if you have 30 or more years of sub­stan­tial So­cial Se­cu­rity earn­ings, WEP doesn’t ap­ply. In your case, since you have 25 years of So­cial Se­cu­rity em­ploy­ment, your first bend point per­cent­age will be 65% rather than 90%, so your first bend point amount (us­ing 2017 num­bers) would go from $796.50 to $575.25, thus re­duc­ing your monthly So­cial Se­cu­rity ben­e­fit by about $221.25. The re­duc­tion amount will be­come $214.00, which is the max­i­mum WEP re­duc­tion for some­one first ap­ply­ing for ben­e­fits in 2017 with 25 years of sub­stan­tial So­cial Se­cu­rity earn­ings.

There are some other fac­tors that come into play with WEP:

WEP re­duc­tion to the So­cial Se­cu­rity ben­e­fit can­not be more than ½ of the amount of your non­cov­ered pen­sion, or more than a max­i­mum based on your years of cov­ered sub­stan­tial earn­ings

A WEP ad­just­ment to a worker’s So­cial Se­cu­rity ben­e­fit also af­fects (re­duces) spousal and other de­pen­dent ben­e­fits, but does not af­fect sur­vivor’s ben­e­fits.

WEP will not af­fect So­cial Se­cu­rity ben­e­fits un­til the first month of en­ti­tle­ment to your non-cov­ered pen­sion. For ex­am­ple, if you start So­cial Se­cu­rity ben­e­fits at age 62 and are not en­ti­tled to your non­cov­ered pen­sion un­til age 65, your So­cial Se­cu­rity ben­e­fit will not be re­duced by WEP un­til you are 65. Con­versely, if you take your non-cov­ered pen­sion and de­lay So­cial Se­cu­rity for some years beyond that, WEP won’t ap­ply un­til you start So­cial Se­cu­rity.

If you take your non­cov­ered pen­sion in a lump­sum, it will be pro­rated to de­ter­mine an equiv­a­lent monthly amount for WEP pur­poses. If you out­live the num­ber of months used in the pro­ra­tion, WEP will cease to im­pact your So­cial Se­cu­rity ben­e­fit.

So, if you re­main in your sec­ond ca­reer long enough to earn a pen­sion, then WEP will even­tu­ally af­fect the So­cial Se­cu­rity ben­e­fit earned from your first ca­reer. Hope­fully, know­ing the above in­for­ma­tion gives you an op­por­tu­nity to man­age the level of im­pact.

So­cial Se­cu­rity Mat­ters is writ­ten by Rus­sell Gloor, an As­so­ci­a­tion of Ma­ture Amer­i­can Ci­ti­zens Cer­ti­fied So­cial Se­cu­rity Ad­vi­sor. The in­for­ma­tion pre­sented in this ar­ti­cle is in­tended for gen­eral in­for­ma­tion pur­poses only. The opin­ions and in­ter­pre­ta­tions ex­pressed in this ar­ti­cle are the view­points of the AMAC Foun­da­tion’s So­cial Se­cu­rity Ad­vi­sory staff, trained and ac­cred­ited un­der the Na­tional So­cial Se­cu­rity Ad­vi­sors pro­gram of the Na­tional So­cial Se­cu­rity As­so­ci­a­tion, LLC (NSSA).

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