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If the Windfall Elimination Provision Reduces Your Social Security, You May Be in Luck

Image shows two Social Security cards. New legislation seeks to repeal the windfall elimination provision and replace it will a new formula.

A decades-old provision that limits the Social Security benefits of nearly 2 million public-sector retirees and workers could be headed to the chopping block. Legislation recently introduced by U.S. Rep. Kevin Brady (R-Texas) aims to nix the windfall elimination provision (WEP) and replace it with a new formula for calculating the Social Security benefits of certain government employees with pensions. Enacted in 1983, the WEP was designed to lessen the advantage that the conventional Social Security benefit formula gave to some retired and disabled workers who receive pensions, but paid Social Security taxes during previous jobs or part-time work.

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“Many of our public servants have worked extra jobs or an extra career, paying into a Social Security system that treats them differently,” Brady said in a statement. “We want equal treatment, and believe it’s time for Congress to act. Every month the WEP continues, it costs retirees and their dependents in smaller Social Security benefits.”

What Is the Windfall Elimination Provision?

Image shows a Social Security Administration building. A new bill aims to repeal the windfall elimination provision.

The WEP effectively reduces Social Security benefits for certain retirees or disabled workers who also receive pension payments. The provision, which applies to Social Security beneficiaries whose pension comes from a non-covered job (an employer that does not withhold Social Security taxes), aims to prevent them from collecting full Social Security benefits on top of their pensions.

While Social Security benefits are normally calculated using percentages of a person’s average indexed monthly earnings (AIME), the WEP reduces those percentages and, in turn, reduces a person’s benefit.

Currently, under the conventional formula, the first $996 of a person’s AIME is multiplied by 90%; the next $5,006 is multiplied by 32%; and all remaining AIME is multiplied by 15%. Those three figures are then added together to calculate a person’s primary insurance amount (PIA) or the retirement benefit a person can receive at full retirement age.

Under the WEP, however, the first $996 of a person’s AIME is multiplied by just 40%, which reduces their eventual PIA by as much as $498.

There are limits to how much the WEP can reduce a person’s Social Security benefits, though. The WEP reduction cannot exceed 50% of a beneficiary’s pension benefit. For example, if a person’s pension pays them $5,000 per month, the WEP could cut his or her monthly Social Security benefits by a maximum of $2,500.

Also, not all people with pensions from non-covered jobs are impacted by the WEP. If you have 30 or more years of eligible earnings from another job and had Social Security taxes withheld, you’re exempt from the WEP. You’re also exempt if you were eligible for pension benefits prior to 1986 or you’re a federal employee whose service and Social Security coverage began after Jan. 1, 1984.

Are Changes Coming to the Windfall Elimination Provision?

Image shows a retiree looking over her finances. A new bill aims to repeal the windfall elimination provision.

Brady, a 13-term Congressman who is set to retire next year, introduced the “Equal Treatment of Public Servants Act of 2021” on Nov. 3. The bill, which has garnered bipartisan support, would replace the current WEP formula with a new way of calculating Social Security benefits for the 1.9 million people affected by the provision.

The bill aims to create a $100 monthly rebate for people 60 and older who are affected by the WEP. Meanwhile, individuals who are between the ages of 22 and 59 would be eligible for either their old WEP calculation or one using a new formula, whichever benefits them more, according to the Federal Times. 

“Our teachers, police and firefighters shouldn’t have their Social Security checks docked each month simply due to an outdated, unfair formula from the 1980’s,” Brady said in a statement. “I’m proud to join with colleagues on both sides of the aisle from nine different states to repeal the WEP and make it fairer for public servants who have worked and paid into Social Security.”

Bottom Line

Since 1983, the windfall elimination provision has reduced the Social Security benefits of people who paid into Social Security at one point but also receive payments from non-covered pensions. Brady wants to overhaul the formula for how these people’s Social Security benefits are calculated and even increase some people’s benefits by $100 per month.

Social Security Planning Tips

  • Waiting until full retirement age before you start collecting Social Security will result in higher benefits than if you started to collect once you turn 62. But waiting to claim Social Security doesn’t always pay off. See how your life expectancy can play a pivotal role in deciding when to start collecting Social Security.
  • Do you know how much you’ll be able to collect in Social Security? SmartAsset’s Social Security Calculator can give you an estimate that can help you plan for your retirement needs.
  • A financial advisor can also help you determine when is the best time to start collecting Social Security. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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