Okay, I know I’m taking my life in my hands, but I really feel a need to clear the air of some misconceptions about the windfall elimination provision.
To do that, I’ll need to take a brief step back in history. To quote the Social Security Administration, “Before 1983, people who worked in jobs not covered by Social Security received benefits that were computed as if they were long-term, low-wage workers. They received the advantage of a higher percentage of benefits in addition to their other pension. Congress passed the windfall elimination provision to eliminate this.”
The way Congress did that was to modify the formula used to calculate those Social Security benefits for employees who would be receiving an annuity from a retirement system not covered by Social Security. In the federal government, that meant retirement systems like CSRS. The WEP does not apply to those covered by CSRS Offset or FERS, since they include Social Security.
Under the modified formula, full benefits are available only to those who have 30 or more years of “substantial earnings” covered by Social Security. For those who have fewer than 30 years, the first multiplier in the Social Security benefit computation is reduced by 5 percent. That first factor is 90 percent. So, for example, if you had 29 years, the multiplier would be reduced to 85 percent. These reductions bottom out at 40 percent for those with 20 or fewer years of substantial earnings covered by Social Security. Note: Substantial earnings are higher than those required to earn credits under Social Security. For example, in 2006 you would only need to earn $3,880 to get credit for four quarters under Social Security. For those earning to be considered to be substantial, you would have to earn $17,475.
Let me illustrate how the modified formula works with an oversimplified example. In 2006, the first percentage in the formula is applied to the first $656 of a 62-year-old’s average indexed monthly earnings (AIME). So, if you had 30 years of substantial earnings covered by Social Security, you would be entitled to $590.40. On the other hand, if you had 20 or fewer years, you would only be entitled to $262.40 or less. I say less because the fewer years of coverage you have, the lower your AIME will be. Note: The other two multipliers in the Social Security formula are not affected by the WEP.
In recent years, bills have been introduced in Congress that would modify or eliminate the WEP. Eliminating it would appear to be out of the question for two reasons. First, it would violate the spirit and intent of the Social Security Act, a social insurance program created to provide a measure of protection to workers, with greater benefits going to those with the lowest incomes. Second, at a time when we as a country are in debt up to our eyeballs and cuts rather than increases are the order of the day for benefits, it’s unlikely that a bill increasing the liability of the Social Security system would get much traction.
There is, of course, the possibility that the formula might be modified. While the arguments in favor of eliminating the WEP entirely are dubious, the appropriateness of the numbers used in a benefit formula are easy targets for debate. Even if changes were to occur there would still be one more question to answer. Should the revision apply to all those who have been affected by it or only to those who would be affected after the law is passed?
