Social Security: The Windfall Elimination
Provision (WEP)
Christine Scott
Specialist in Social Policy
February 15, 2013
Congressional Research Service
7-5700
www.crs.gov
98-35
CRS Report for Congress
Prepared for Members and Committees of CongressGary Sidor
Information Research Specialist
April 16, 2014
The House Ways and Means Committee is making available this version of this Congressional Research Service
(CRS) report, with the cover date shown, for inclusion in its 2014 Green Book website. CRS works exclusively
for the United States Congress, providing policy and legal analysis to Committees and Members of both the
House and Senate, regardless of party affiliation.
Congressional Research Service
98-35
Social Security: The Windfall Elimination Provision (WEP)
Summary
The windfall elimination provision (WEP) reduces the Social Security benefits of workers who
also have pension benefits from employment not covered by Social Security. Its purpose is to
remove an advantage or “windfall” these workers would otherwise receive as a result of the
interaction between the Social Security benefit formula and the workers’ relatively short careers
small portion
of their careers in Social Security-covered employment. Opponents contend the provision is
basically imprecise
and can be unfair.
This report will be updated annually or upon legislative activity.
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Social Security: The Windfall Elimination Provision (WEP)
Contents
Background ...................................................................................................................................... 1
Who isIs Affected by the WEP? ......................................................................................................... 3
Legislative History and Rationale. ................................................................................................... 5
Arguments for the Windfall Elimination Provision ................................................................... 6
Arguments Against the Windfall Elimination Provision ........................................................... 6
The WEP’s Impact on Low-Income Workers ............................................................................ 6
Tables
Table 1. Social Security Benefit Formula in 2013 2014........................................................................... 1
Table 2. Monthly PIA for a Worker With Average Indexed Monthly Earnings of $1,500
and Retiring in 20132014 ..................................................................................................................... 2
Table 3. WEP Reduction Falls with Years of Substantial Coverage ................................................ 3
Table 4. Number of Beneficiaries in Current Payment Status with Benefits Affected by
Windfall Elimination Provision (WEP), by State and Type of Benefit, December 2012 ............ 4
Contacts
Author Contact Information............................................................................................................. 7
Acknowledgments ........................................................................................................................... 7
2013 ............ 4
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Social Security: The Windfall Elimination Provision (WEP)
Background
The Social Security benefit formula is designed so that workers with low average lifetime
earnings in Social Security-covered employment receive a benefit that is a larger proportion of
their earnings than do workers with high average lifetime earnings. The benefit formula does not
distinguish, however, between workers who have low average earnings because they worked for
many years at low wages in Social Security-covered employment and workers who have low
average earnings because they worked briefly in Social Security-covered employment. The
generous benefit that would be provided to workers with short careers in Social Security-covered
employment—in particular, workers who have split their careers between Social Security-covered
and non-covered employment—is sometimes referred to as a “windfall” that would exist in the
absence of the windfall elimination provision (WEP). The WEP reduces the Social Security
benefits of workers who also have pension benefits from employment not covered by Social
Security.
A worker is eligible for Social Security after he or she works in Social Security-covered
employment for 10 or more years (more specifically, 40 or more quarters for which the worker
has covered earnings). The worker’s earning history is indexed
to wage growth to bring earlier
years of his or her earnings up to a comparable, current basis.
Average indexed earnings are found
by totaling the highest 35 years of indexed wages and then
dividing by 35. Next, a monthly
average, known as Average Indexed Monthly Earnings (AIME),
is found by dividing the annual
average by 12.
The Social Security benefit formula is designed to provide a progressive benefit. The benefit
formula applies three progressive factors—90%, 32%, and 15%—to three different levels, or
brackets, of AIME.1 The result is known as the “primary insurance amount” (PIA) and is rounded
down to the nearest 10 cents. For persons who reach age the age of 62, die, or become disabled in
20132014, the PIA is determined in Table 1 as follows:
Table 1. Social Security Benefit Formula in 20132014
Factor
Average Indexed Monthly Earnings
90%
of the first $791816, plus
32%
of AIME over $791816 and through $4,768917, plus
15%
of AIME over $4,768917
The averaging provision in the benefit formula tends to cause workers with short careers in Social
Security-covered employment to have low AIMEs, similar to persons who worked for low wages
in covered employment throughout their careers. This is because years of zero covered earnings
are entered as zeros into the formula that averages the worker’s wage history over 35 years. For
example, a person with 10 years in Social Security-covered employment would have an AIME
that reflects 25 years of zero earnings.
Consequently, for a worker with a low AIME because she split her career between covered and
non-covered employment, the benefit formula replaces more of covered earnings at the 90% rate
1
Both the annual earnings amounts over the worker’s lifetime and the bracket amounts are indexed to national wage
growth so that the Social Security benefit replaces approximately the same proportion of wages for each generation.
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Social Security: The Windfall Elimination Provision (WEP)
Consequently, for a worker with a low AIME because he or she split their career between covered
and non-covered employment, the benefit formula replaces more of covered earnings at the 90%
rate than if this worker had spent his or her full 35-year career in covered employment at the same
wage level. The higher replacement rate2 for workers who have split their careers between Social
Security-covered and non-covered jobs is sometimes referred to as a “windfall.”3
A different Social Security benefit formula, referred to as the “windfall elimination provision,”
applies to many workers who are entitled to Social Security as well as to a pension from work not
covered by Social Security (e.g., individuals who work for certain state and local governments, or
under the Federal Civil Service Retirement System [CSRS]).4 Under these rules, the 90% factor
in the
first bracket of the formula is replaced by a factor of 40%. The effect is to lower the
proportion of
earnings in the first bracket that are converted to benefits. Table 2 illustrates how
the regular and
WEP provisions work in 20132014.
Table 2. Monthly PIA for a Worker With Average Indexed Monthly
Earnings of $1,500 and Retiring in 20132014
Regular Formula
Windfall Elimination Formula
90% of first $791
$711.90816
$734.40
40% of first $791
$316816
$326.40
32% of earnings over $791816 and
through $4,768
$226917
$218.88
32% of earnings over $791816 and
through $4,768
$226917
$218.88
15% over $4,768917
Total
0.00
$938.78953.28
15% over $4,768917
Total
0.00
$543545.28
Source: Calculations were made by the Congressional Research Service (CRS).
Note: To simplify the example, rounding conventions that would normally apply are not used here.
Under the WEP formula, the monthly benefit for the worker is reduced by $395.50 ($938.78 - $543.28) per
month 408.00 ($953.28 $545.28) relative to the regular benefit formula. Note that the WEP reduction is limited to the first
bracket in the AIME formula (90% vs. 40% formula rates), while the 32% and 15% factors for
the second
and third brackets are the same as in the regular benefit formula. As a result, for AIME
amounts amounts
that exceed the first formula threshold of $791816, the amount of the WEP reduction
remains a flat $395.50
$408 per month. For example, if the worker had an AIME of $4,000 instead of
$1,500, the WEP
reduction would still be $395.50408 per month. The WEP therefore causes a
proportionally larger
reduction in benefits for workers with lower AIMEs and monthly benefit
amounts. 5
2
A worker’s replacement rate is the ratio of his or her Social Security benefit to pre-retirement income.
The WEP is sometimes confused with the Government Pension Offset (GPO), which reduces Social Security spousal
benefits of a worker who also has a government pension based on work that was not covered by Social Security. For
more information on the GPO, please refer to CRS Report RL32453, Social Security: The Government Pension Offset
(GPO), by Christine Scott.
4
Social Security Act §215(a)(7). Federal service where Social Security taxes are withheld (Federal Employees’
Retirement System or CSRS Offset) is not affected by the WEP.
5
For the worker shown in Table 2, with an AIME of $1,500 and a monthly benefit of $938.78953.28 under the regular benefit
formula in 20132014, the WEP reduction of $395.50408.00 represents a 42% cutcut of approximately 43% to the regular formula monthly
benefit amount.
By comparison, a worker with an AIME of $4,000 would be entitled to a PIA of $1,738.78753.28 under the 2013 regular
2014 regular benefit formula, and the same WEP reduction of $395.50408 per month would represent a 23% reduction in this
worker’s
monthly benefit amount (CRS calculations).
3
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Social Security: The Windfall Elimination Provision (WEP)
A “guarantee” in the WEP provision ensures that a worker’s WEP reduction cannot exceed more
than one half of half of
the government pension based on the worker’s non-covered work. This
“guarantee” is designed to
help protect workers with low non-covered pensions and also ensures
that the WEP can never
completely eliminate a worker’s Social Security benefit. The WEP also
exemptsdoes not apply to workers who
have 30 or more years of “substantial” employment covered under Social
Security, with lesser reductionsan
adjusted formula for workers with 21 through 29 years of substantial covered
employment, as
shown in Table 3.6
Table 3. WEP Reduction Falls with Years of Substantial Coverage
Years of Social Security Coverage
20
21
22
23
24
25
26
27
28
29
30+
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
$197.75
$158.20
$118.65
$79.10
$39.55204.00
$163.20
$122.40
$81.60
$40.80
First factor in formula:
40%
Maximum dollar amount of monthly WEP reduction in 2013:a
$395.50
$355.95
$316.40
$276.85
$237.302014:a
$408.00
$367.20
$326.40
$285.60
$244.80
$0.00
Source: Social Security Administration, How the Windfall Elimination Provision Can Affect Your Social Security Benefit,
Washington, DC, http://www.socialsecurity.gov/retire2/wep-chart.htm.
a.
WEP reduction may be lower than the amount shown because the reduction is limited to one-half of the
worker’s pension from non-covered employment. Also, the reduction is greatest when the AIME is equal to
or exceeds the first bend point in the computation formula. When the AIME is less than the first bend
point, the effect of the WEP formula is reduced.
The WEP also
The WEP does not apply to (1) an individual who on January 1, 1984, was an employee of a
government or nonprofit organization and to whom Social Security coverage was mandatorily
extended by the 1983 amendments to the Social Security Act (e.g., the President, Members of
Congress in office on December 31, 1983); (2) benefits for survivors; (3) workers who reached
the age of 62, became disabled, or were first eligible for a pension from non-covered
employment, employment
before 1986; (4) benefits from foreign Social Security systems that are based on a
“totalization”
agreement with the United States; and (5) people whose only non-covered
employment that
resulted in a pension was in military service before 1957 or is based on railroad
employment.
Who isIs Affected by the WEP?
According to the Social Security Administration (SSA), as of December 20122013, about 1.5 million
Social Security beneficiaries were affected by the WEP, as shown in Table 4. About 1.4 million
people (92.2% 5%) affected by the WEP were retired workers. About 2.47% of all Social Security
beneficiaries (including disabled and spouse beneficiaries), and about 4.0% of all retired worker
beneficiaries, were affected by the WEP in December 2012.7 Of retired workers affected by the
WEP, approximately 61.9% were men.8
3.8% of all retired worker
6
For determining years of coverage after 1978 for individuals with pensions from non-covered employment,
“substantial coverage” is defined as 25% of the “old law” (i.e., if the 1977 Social Security Amendments had not been
enacted) Social Security maximum taxable wage base for each year in question. In 20132014, the “old-law” taxable wage
base is equal to $84,30087,000, therefore to earn credit for one year of “substantial” employment under the WEP a worker
would have to earn at least $21,075 in Social Security-covered employment.
7
Social Security data on the Social Security beneficiary and retired worker populations are available from the Monthly
(continued...)
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Social Security: The Windfall Elimination Provision (WEP)
750 in Social Security-covered employment.
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Social Security: The Windfall Elimination Provision (WEP)
beneficiaries were affected by the WEP in December 2013.7 Of retired workers affected by the
WEP, approximately 61% were men.8
Table 4. Number of Beneficiaries in Current Payment Status with
Benefits Affected by Windfall Elimination Provision (WEP),
by State and Type of Benefit, December 20122013
Type of Benefit
State
Total
Alabama
Total
1,466,386549,544
Alabama
Retired
Workers
1,351,752433,475
Disabled
Workers
18,15817,561
Spouses and
Children
96,476
17,558
15,885
351
1,322
Alaska
8,011
7,552
105
354
Arizona
27,104
25,150
299
1,655
Arkansas
9,947
9,213
206
528
California
196,310
182,284
2,114
11,912
Colorado
45,386
42,482
660
2,244
Connecticut
14,758
14,041
157
560
3,328
3,129
47
152
Delaware
District of Columbia
7,578
7,199
135
244
Florida
81,811
75,619
890
5,302
Georgia
42,455
39,885
544
2,026
Hawaii
8,986
8,277
76
633
Idaho
6,294
5,802
80
412
Illinois
77,033
72,956
633
3,444
Indiana
14,329
13,338
205
786
Iowa
7,604
7,111
79
414
Kansas
8,266
7,681
133
452
19,023
17,653
348
1,022
Kentucky
Louisiana
30,319
27,517
667
2,135
Maine
13,787
12,978
165
644
Maryland
42,500
39,846
518
2,136
Massachusetts
53,649
50,892
705
2,052
Michigan
18,302
16,810
301
1,191
Minnesota
15,786
14,830
164
792
Mississippi
8,819
8,109
156
554
Missouri
31,285
29,619
434
1,232
Montana
5,260
4,859
69
332
Nebraska
4,901
4,617
41
243
22,296
21,177
228
891
6,507
6,073
128
306
Nevada
New Hampshire
New Jersey
20,650
19,008
376
1,266
New Mexico
11,853
10,721
167
965
(...continued)
Statistical Snapshot, December 2012, at http://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/index.html
8
Social Security Administration, Office of Research, Evaluation and Statistics, January 201398,508
18,077
16,426
322
1,329
Alaska
8,523
8,043
107
373
Arizona
28,603
26,603
304
1,696
Arkansas
10,178
9,496
190
492
California
208,941
194,557
2,100
12,284
Colorado
48,596
45,636
683
2,277
Connecticut
15,784
15,033
150
601
3,595
3,395
39
161
Delaware
District of Columbia
7,747
7,403
117
227
Florida
85,783
79,527
884
5,372
Georgia
45,048
42,475
548
2,025
Hawaii
9,463
8,742
76
645
Idaho
6,661
6,145
75
441
Illinois
81,684
77,571
614
3,499
Indiana
15,009
14,023
202
784
Iowa
7,789
7,334
61
394
Kansas
8,595
8,039
118
438
Kentucky
20,168
18,820
323
1,025
Louisiana
33,094
30,200
691
2,203
Maine
14,708
13,895
145
668
Maryland
44,218
41,591
484
2,143
Massachusetts
57,930
55,072
687
2,171
Michigan
19,157
17,678
274
1,205
Minnesota
16,166
15,248
162
756
Mississippi
9,169
8,464
149
556
Missouri
33,033
31,436
385
1,212
Montana
5,525
5,133
53
339
Nebraska
5,038
4,762
45
231
24,289
23,110
240
939
Nevada
7
Social Security data on the total Social Security beneficiary and retired worker populations used in calculations are
available from the Monthly Statistical Snapshot, December 2013, at http://www.socialsecurity.gov/policy/docs/
quickfacts/stat_snapshot/2013-12.html.
8
Social Security Administration, Office of Research, Evaluation and Statistics, January 2014, unpublished table W01.
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Type of Benefit
New York
29,068
Retired
Workers
26,730
North Carolina
26,052
24,315
327
1,410
North Dakota
2,253
2,099
17
137
107,264
100,431
1,233
5,600
Oklahoma
16,319
14,919
303
1,097
Oregon
14,349
13,364
141
844
Pennsylvania
32,825
30,250
540
2,035
Rhode Island
4,691
4,413
67
211
16,006
14,834
223
949
State
Ohio
South Carolina
Total
South Dakota
Disabled
Workers
446
Spouses and
Children
1,892
3,541
3,334
36
171
17,967
16,571
250
1,146
Texas
130,515
121,020
1,566
7,929
Utah
12,060
10,918
145
997
2,367
2,197
22
148
Virginia
44,354
40,976
430
2,948
Washington
27,336
24,893
316
2,127
Tennessee
Vermont
West Virginia
5,750
5,155
130
465
Wisconsin
11,027
10,328
120
579
Wyoming
2,175
2,028
29
118
78,772
60,664
636
17,472
Outlying areas and
foreign countries
Source: Social Security Administration, Office of Research, Evaluation and Statistics, January 20136,887
Retired
Workers
6,471
New Jersey
21,518
19,882
337
1,299
New Mexico
12,357
11,246
170
941
New York
30,194
27,802
423
1,969
North Carolina
27,168
25,466
305
1,397
North Dakota
2,249
2,113
12
124
State
New Hampshire
Ohio
Total
Disabled
Workers
115
Spouses and
Children
301
114,396
107,466
1,287
5,643
Oklahoma
16,883
15,521
283
1,079
Oregon
15,025
13,982
129
914
Pennsylvania
34,129
31,595
525
2,009
Rhode Island
4,995
4,722
68
205
South Carolina
16,685
15,514
216
955
South Dakota
3,663
3,466
34
163
18,684
17,362
221
1,101
Texas
140,144
130,435
1,507
8,202
Utah
12,483
11,374
137
972
Tennessee
Vermont
2,445
2,280
21
144
Virginia
45,905
42,547
390
2,968
Washington
28,803
26,329
281
2,193
5,943
5,363
120
460
11,482
10,793
95
594
West Virginia
Wisconsin
Wyoming
Outlying areas and
foreign countries
2,248
2,111
24
113
82,687
63,778
633
18,276
Source: Social Security Administration, Office of Research, Evaluation and Statistics, January 2014, unpublished
Table B.
Legislative History and Rationale
The windfall elimination provision was enacted in 1983 as part of major amendments designed to
shore up the financing of the Social Security program. The 40% WEP formula factor was the
result of a compromise between a House bill that would have substituted a 61% factor for the
regular 90% factor and a Senate proposal that would have substituted a 32% factor for the 90%
formula.9
The purpose of the 1983 lawprovision was to remove an unintended advantage that the regular Social
Security benefit formula provided to persons who also had pensions from non-Social Securitycovered employment. The regular formula was intended to help workers who spent their lifetimes
in low paying jobs, by providing them with a benefit that replaces a higher proportion of their
earnings than the benefit that is provided to workers with high earnings. However, to the present
9
Conference Report to Accompany H.R. 1900, 98th Cong., March 24, 1983 (Washington: GPO, 1983), p. 120.
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day the formula does the formula
could not differentiate between those who worked in low-paid jobs throughout
their careers and
other workers who appearedappear to have been low paid because they worked many
years in jobs not
covered by Social Security. Under the old law, workers who were employed for only a portion of
9
Conference Report to Accompany H.R. 1900, 98th Cong., March 24, 1983 (Washington: GPO, 1983), p. 120.
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only a portion of their careers in jobs covered by Social Security—even highly paid ones—also
received the
advantage of the “weighted” formula. The windfall elimination formula is intended to intends to
remove this
advantage for these workers.
Arguments for the Windfall Elimination Provision
Proponents of the measure say that it is a reasonable means to prevent payment of overgenerous
and unintended benefits to certain workers who otherwise would profit from happenstance (i.e.,
the mechanics of the Social Security benefit formula). Furthermore, they maintain that the
provision rarely causes hardship because by and large the people affected are reasonably well off
because by definition they also receive government pensions from non-covered work. The
guarantee provision ensures that the reduction in Social Security benefits cannot exceed half of
the pension from non-covered work, which protects persons with small pensions from noncovered work. In addition, the impact of the WEP is reduced for workers who spend 21 to 29
years in Social Security-covered work and is eliminated for persons who spend 30 years or more
in Social Security-covered work.
Arguments Against the Windfall Elimination Provision
Some opponents believe the provision is unfair because it substantially reduces a benefit that
workers may have included in their retirement plans. Others criticize how the provision works.
They say the arbitrary 40% factor in the windfall elimination formula is an imprecise way to
determine the actual windfall when applied to individual cases.
The WEP’s Impact on Low-Income Workers
The impact of the WEP on low-income workers has been the subject of debate. Jeffrey Brown
and Scott Weisbenner (hereinafter referred to as “Brown and Weisbenner”) point out two reasons
why the WEP can be regressive.10 First, because the WEP adjustment is confined to the first
bracket of the benefit formula ($791 in 2013816 in 2014), it causes a proportionally larger reduction in
benefits for workers with lower AIMEs and benefit amounts. Second, a high earner is more likely
than a low earner to cross the “substantial work” threshold for accumulating years of covered
earnings (in 20132014 this threshold is $21,075750 in Social Security-covered earnings); therefore, high
earners are more likely to benefit from the provision that phases out of the WEP for persons with
between 21 and 30 years of covered employment.
Brown and Weisbenner found that the WEP does reduce benefits disproportionately for lowerearning households than for higher-earning households. For some high-income households,
applying the WEP to covered earnings
even provides a higher replacement rate than if the WEP
were applied proportionately to all
earnings, covered and non-covered. Brown and Weisbenner
also found that the WEP can also lead to
10
Jeffrey R. Brown and Scott Weisbenner, The Distributional Effects of the Social Security Windfall Elimination
Provision, Journal of Pension Economics and Finance, Volume 12, Issue 04, October 2013, pp. 415-434.
http://business.illinois.edu/weisbenn/RESEARCH/PAPERS/JPEF_Brown_Weisbenner.pdf.
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large changes in Social Security replacement rates based
on small changes in covered earnings,
particularly when a small increase in covered earnings
carries a person over the threshold for an
additional year of substantial covered earnings, leading
to a modification in the WEP formula.
10
Jeffrey R. Brown and Scott Weisbenner, The Distributional Effects of the Social Security Windfall Elimination
Provision, NBER, Working Paper no. 18342, August 2012, http://www.nber.org/papers/w18342.
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to an adjustment in the WEP formula
applied to the AIME.
SSA estimated that in 2000, 3.5% of recipients affected by the WEP had incomes below the
poverty line. For comparison purposes, at that time 8.5% of all Social Security beneficiaries aged
65 and older had incomes below the poverty line and 11.3% of the general population had
incomes below the poverty line.11 A potential conclusion isThis comparison implies that persons who are subject to the
WEP, who by definition also have pensions from non-covered employment, face a somewhat
reduced risk of poverty compared with other Social Security beneficiaries.
Author Contact Information
Christine Scott
Specialist in Social Policy
cscott@crs.loc.gov, 7-7366
Acknowledgments
This report was originally written by Alison M. Shelton, a former Analyst at the Congressional Research
Service. All questions should be directed to the current author.
11
11
These are the most recent estimates available. Poverty rates were calculated by David Weaver of the Social Security
Administration’s Office of Retirement Policy using the March 2001 Current Population Survey (CPS). Poverty status is
taken directly from the CPS and is thus subject to errors in the reporting of income. The sample size for the WEP
poverty rate is relatively small (230 cases) and only includes persons for whom SSA administrative records could be
matched.
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