Will Your Social Security Get Whacked by the WEP?

The Equal Treatment of Public Servants Act of 2015–sponsored by Rep. Kevin Brady, R-Texas, who chairs the powerful Ways and Means Committee–was initially estimated to reduce the the WEP penalty by 43 percent. Under a revision that surfaced in July, a 15% reduction in the penalty would begin in 2018, and a 50% reduction in the WEP penalty would begin in 2027, according to estimates by the Social Security actuary. Had the proposal been in effect this year, the proposal would have helped about 1.25 million beneficiaries.

The bill has been hung up over debate among the sponsors and reform advocates on who exactly should receive relief and how to pay for it.

“It all adds up to how much savings are being created by certain portions of the bill and how the savings will be used to reform the WEP formula going forward or provide relief,” says John Hatton, deputy legislative director for the National Active and Retired Federal Employees Association, one group that has lobbied to get rid of the WEP and the GPO. (The bill aims to be budget-neutral through 2025; a fact sheet on the current proposal can be found here.)

Why would government workers be treated differently from everyone else? The answer begins with the way that Social Security benefits are distributed across wage-earners with varying incomes.

Social Security’s benefit formula is progressive; workers with low average lifetime earnings get a higher benefit amount compared with their earnings than people who are better paid. Social Security expresses your benefit as a primary insurance amount. This is derived by calculating your average indexed monthly earnings–your top 35 years of earnings before age 60 are indexed then to put them on more of a proper comparative basis with the earnings level in our society as of the year you turned 60. That is done using the average wage indexing series that the Social Security Administration computes every year.

Then, your primary insurance amount is calculated. This is a weighted formula that gives a higher benefit relative to career earnings for a lower earner than for a high earner. A worker receives 90% of average indexed monthly earnings for the first segment of PIA (also referred to as a “bend point”.) This year, that covers the first $856 of monthly AIME. For the next segment, between $856 and $5,157, you get 32% of AIME. For any AIME amount above that amount, you get 15% of AIME.

But the PIA formula doesn’t distinguish between workers who had low wages and those who worked for part of their careers in jobs not covered by Social Security. Many federal and state jobs are outside the system because they are covered by government pension plans.

The WEP aims to eliminate the high benefit return these workers get on their Social Security income when they are not really low-income. The Committee on Ways and Means offers this example. Consider two workers: one with her entire career as a privately employed security guard; the other splits her career between a privately employed security guard and a police officer for a government employer that does not participate in Social Security.

Throughout their careers, both have the same average monthly earnings–$4,000. That full amount is cranked into AIME for the private sector worker, but just $2,285 is considered for the worker who split her time between the public and private sectors. The WEP reduces initial Social Security payments from $1,776 to $800.

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Comments

  1. Deborah A Watkins says:

    Please fix this. For years, I received SS statements that I would have a certain amount at age 62 when I had to retire due to disability. They cut it in half because I had served mh government for 12 years, but I had plenty of SS credits. I HAVE NO PENSION. I was too young and lacked the years for a pension , so I have a very small IRA that is runninng out. THE FACT THAT THIS WAS MADE RETROACTIVE HAD RUINED RETIREMENT FOR MANY. I HAD TO GO TO MEXICO. HOPE I CAN COME HOME SOMEDAY. This has been devastating for many, I worked 40years and retired on 616 a month because of those 12 years. I had financial advice when I made the change at age 48. Please fix this.

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