Windfall Elimination Provision (WEP)
The Windfall Elimination Provision (WEP) affects the pension benefits of individuals whose employers do not withhold Social Security taxes from their salary, such as employees of a Government Agency or an employer in another country. Any pension that is received based on that work may reduce the individual’s Social Security benefits. Due to the impact that WEP has on a retiree’s Social Security Benefits it is important to understand how this might impact you before you retire. If you think you may be impacted by WEP you should consult with a Financial Professional who has been trained in Public Sector Retirement benefits, who will be able to run calculations on specialized software to better analyze your benefits and the impacts of WEP on your retirement income.
The WEP primarily affects you if you earned a pension in any job where you did not pay Social Security taxes and you also worked in other jobs long enough to qualify for a Social Security retirement or disability benefit. Federal government work where Social Security taxes are withheld (e.g., jobs covered by the Federal Employees Retirement System or FERS) will not reduce your Social Security benefit amounts.
The WEP provision affects Social Security benefits when any part of a person’s federal service after 1956 is covered under the Civil Service Retirement System (CSRS). The WEP may apply if:
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- You reached 62 after 1985; or
- You became disabled after 1985; and
- You first became eligible for a monthly pension based on work where you did not pay Social Security taxes after 1985, even if you are still working.
The WEP substantially reduces the Social Security retirement benefits of many retirees who collect public sector pensions from jobs that were not covered by the program. If you’re covered by Social Security, you’re not affected.
If you’re not covered by Social Security, then there is a good chance that you may be affected. With a few exceptions, if you have also worked in jobs covered by Social Security long enough to be eligible for benefits (that is, for forty quarters), you will have those benefits reduced if you collect a pension from a non-covered job.
There is some protection in the law, however, for those who only get a small pension from non-covered work. The WEP reduction cannot be more than one-half of the non-covered pension.
An Unpleasant Surprise
Many people do not know about the WEP and experience the unpleasant surprise of learning that their retirement income will be sharply reduced at a time when it is too late to adjust for it. There is now a requirement that public employers must notify each new employee about the WEP and the Government Pension Offset (GPO) (see related article), and that each new hire must sign a document attesting to having been notified about the provision. To learn more about how the WEP may affect your Social Security benefits, please go to the following page on the Social Security website: http://www.ssa.gov/pubs/EN-05-10045.pdf.
