Welcome to Ask Money Talks News, a series answering financial questions submitted by Money Talks Newsletter subscribers.
In this installment, we’re talking about two of the lesser-known — but more confusing — aspects of the Social Security retirement program. Both can ding the Social Security benefit amounts of certain retirees who also earned pensions through former employers, or are or were married to someone who did.
Phyllis asks Money Talks News:
“Please explain WEP and GPO and how this works for survivors who worked 20 years paying into Social Security and 30 years as a state employee in a state that the Federal Government uses a formula to determine how much of your social security they will give you back?”
Thanks for your question, Phyllis. Social Security’s windfall elimination provision (WEP) and government pension offset (GPO) can both be confusing. So, first allow me to explain each on its own, for readers who might be unfamiliar with them. Then, I will speak to the particular situation you describe.
What is the windfall elimination provision?
Typically, after 10 years of work, you are eligible to receive a retirement benefit from Social Security. The WEP can reduce the amount of your Social Security benefit if you also earned a pension from an employer that did not withhold Social Security payroll taxes from your paychecks during your working years. This is often the case for teachers and county and other government workers.
Say a public school district did not withhold Social Security taxes from a teacher’s paychecks because the teacher instead contributed to the school district’s pension system. Under the windfall elimination provision, the teacher’s Social Security retirement benefit would be reduced — or the teacher may not receive a Social Security benefit unless they worked for another employer who did withhold Social Security taxes.
But if the teacher worked for another employer that withheld Social Security taxes for at least 20 years, the effects of the WEP can be reduced or even eliminated.
The Social Security Administration offers a free WEP online calculator that can help you determine if your benefit will be reduced due to the windfall elimination provision, as well as a “Windfall Elimination Provision” explainer.
What is the government pension offset?
Generally, a spouse or a surviving spouse is entitled to receive a spousal benefit or survivor’s benefit, respectively, from Social Security if they were married to their spouse for a certain amount of time (10 years or more in most cases). This can also be the case for a divorced spouse who has not remarried.
However, if someone receiving a spousal or survivor’s benefit (or ex-spousal benefit) worked for an employer that did not withhold Social Security payroll taxes from their paychecks, their Social Security benefit likely will be reduced, or “offset,” per the GPO.
For example, let’s take a widow who is eligible for a survivor’s benefit from Social Security but is receiving a pension payment from her former employer. The amount of her survivor’s benefit would be offset.
The Social Security Administration offers a free GPO online calculator as well as a “Government Pension Offset” guide and explainer.
Phyllis’ situation
The amount of time you work at an employer that withholds payroll taxes can make all the difference in how the WEP or GPO might reduce your own Social Security retirement benefit or any spousal or survivor’s benefit for which you might be eligible.
It’s tough to say what exactly this means for any one person, though, without all the details of their particular situation. So, in trying to answer your question, Phyllis, here are a couple of possible scenarios to consider.
If your spouse passed away, you could be entitled to a Social Security survivor’s benefit, which would be based on your spouse’s earnings record. However, if your spouse earned a pension through an employer that did not withhold Social Security taxes (known as a non-covered pension), or if you earned a non-covered pension, your Social Security benefit likely will be reduced.
Let’s say after 30 years of working as a state employee, you’ve earned a non-covered pension and you wonder if you can receive a Social Security survivor’s benefit. Because you earned a pension without paying Social Security taxes, your survivor’s benefit likely will be reduced.
Now, if you worked for other employers who did withhold Social Security taxes, your benefit may not be reduced as much, especially if you worked for those employers for 20 years.
Either way, you’ll need to know the amount of your non-covered pension so you can determine how the WEP and GPO might affect your retirement benefits before you leave the workplace.
You can learn more about both of these Social Security rules from the documents and online calculators I mentioned above.
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