Social Security Q&A: What’s the Windfall Elimination Provision?

Social Security Q&A: What’s the Windfall Elimination Provision?
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This week’s question comes from Sylvia:

My husband is a retired government employee who was not covered by the Social Security system for most of his working years, although he eventually earned enough credits to qualify for Social Security. Because he is under the Windfall Elimination Provision (WEP), he is able to draw only slightly more than one-half of his Social Security pension. I have no Social Security on my own. When I applied at 66 for half of his, I was told by the representative that I only get one-half of what he now gets, not one-half of what he was entitled to before the WEP penalty. Is that correct?

Sylvia, here is the short answer: Yes, your spousal benefits are also reduced due to the Windfall Elimination Provision.

What’s WEP?

Let’s look at some of the details surrounding WEP.

Some government agencies do not pay into the Social Security system. Instead, they provide a separate pension. The California school system is an example of this arrangement.

It is fairly common for workers receiving a pension from such a government agency to also work a different job covered by Social Security. If they work for at least 40 quarters, they qualify for Social Security benefits in addition to their other government pension.

This can create an unfair situation, which WEP was designed to correct.

Why WEP?

As an example, consider a woman who barely qualifies for Social Security with 40 quarters of work. She will have a relatively small benefit even though she may be a high earner. Typically, a small benefit implies a low-wage worker.

The Social Security system was designed to favor low-wage workers over high-wage workers. So, when small benefits arise because a person mainly worked in employment where a pension substituted for Social Security, the WEP is used to address the unfairness created by treating these higher earners as if they were lower earners who otherwise would receive an extra boost in their Social Security benefits.

How WEP works

The WEP penalty is based on a complicated formula, which I have discussed in some detail here, for those who want to get deep into the weeds on this.

The penalty reduces a Social Security recipient’s benefit at their full retirement age, also known as their primary insurance amount (PIA). The maximum WEP penalty is currently about $450 a month, but several factors can reduce that amount.

A reduced PIA is used in calculating early claiming penalties and delayed retirement credits. The reduced PIA is also used in computing spousal benefits, which is where you come in. Since your husband’s PIA has been reduced by WEP, your spousal benefit is also reduced accordingly.

Sylvia, here’s a final potentially important point: While WEP penalizes you in connection with spousal benefits, it does not penalize you with regard to widow’s benefits. So, if your husband dies before you, your widow’s benefit will equal what he would have received prior to the WEP penalty.

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About me

I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years. In 2009, I co-founded, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.

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Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.

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