This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with red strikethrough and textual matter added in the later version is indicated with blue.
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 small portion of their careers in Social Security-covered employment. Opponents contend the provision is imprecise and can be unfair.
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 previous earnings than do workers with high average lifetime earnings. (In covered employment, earnings are subject to the Social Security payroll tax; Social Security benefits are based on covered earnings.) in covered
employment.1 The benefit formula, however, 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 appear to have low average earnings because they worked in
Social Security-covered employment for only part of their career. 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"“windfall” that would exist in the absence of the
windfall elimination provision (WEP). The WEP reduces the Social Security benefits of workers
who have pension benefits from employment not covered by Social Security.
A worker qualifies for Social Security retirement benefits by working in Social Security-covered
employment for 10 or more years (more specifically, by earning 40 or more "“quarters of coverage").
coverage”).2 The worker'’s earnings 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
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 benefitprogressive, replacing a greater share of average lifetime
earnings for low-wage workers than for high-wage workers. The benefit formula applies three progressive
factors—90%, 32%, and 15%—to three different levels, or brackets, of AIME.13 The result is
known as the "primary insurance amount" (PIA) and is rounded down to the nearest 10 cents. The
PIA is the worker’s basic benefit before any adjustments are applied. For people who attain age
For people who reach age the age of 62, die, or become disabled in 20152016, the PIA is determined in Table 1 as follows:
Factor |
Average Indexed Monthly Earnings |
90% |
|
32% |
of AIME over $826 and through $4,980, plus |
15% |
of AIME over $4,980 |
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 people 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
1
In covered employment, earnings are subject to the Social Security payroll tax; Social Security benefits are based on
covered earnings.
2
Disabled workers are generally required to have worked fewer years. For more information, see Social Security
Administration (SSA), How You Earn Credits, Publication No. 05-10072, January 2016, https://www.ssa.gov/pubs/EN05-10072.pdf.
3
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.
Congressional Research Service
1
Social Security: The Windfall Elimination Provision (WEP)
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 whose AIME is low because a career was split between covered and
non-covered employment, the benefit formula replaces more of covered earnings at the 90% rate
than if this worker had spent a full 35-year career in covered employment at the same wage level.
The higher replacement rate2rate4 for workers who have split their careers between Social Security-coveredSecuritycovered 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
federal workers covered by the Federal Civil Service Retirement System [CSRS]).46 Under these
rules, the 90% factor in the first bracket of the formula is reduced to as low as 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 benefit formula and the WEP work in 20152016 for someone with a 40%
factor.
factor.
Table 2. Monthly PIA for a Worker with Average Indexed Monthly Earnings of $1,500,
Retiring in 20152016 with 20 or Fewer Years of Covered Employment
Regular Formula |
Windfall Elimination Formula |
||||||
90% of first $826 |
|
40% of first $826 |
| ||||
|
|
Regular Formula
Windfall Elimination Formula
90% of first $856
$770.40
40% of first $856
$342.40
32% of earnings over $856
and through $4,980
$206.08
32% of earnings over $826 |
| ||||
15% over $4,980 |
|
15% over $4,980 |
| ||||
Total |
|
Total |
|
Source: 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 is $413.00 ($959.08-$546.08) lower than under the regular benefit formula. Note that the WEP reduction is limited to the first bracket in the AIME formula (90% vs. 40% rates), while the 32% and 15% factors for the second and third brackets are unchanged. As a result, for AIME amounts that exceed the first formula threshold of $826, the WEP reduction remains a flat $413 per month. For example, if the worker had an AIME of $4,000 instead of $1,500, the WEP reduction would still be $413 per month. The WEP therefore causes a proportionally larger reduction in benefits for workers with lower AIMEs and monthly benefit amounts.5
A "guarantee"benefit amounts.7
A “guarantee” in the WEP ensures that the WEP reduction cannot exceed half of the government
pension based on the worker'’s non-covered work. This guarantee is designed to help protect
workers with low pensions from non-covered work and also ensures that the WEP can never
eliminate a worker'’s Social Security benefit. The WEP does not apply to workers who have 30 or
more years of "substantial"substantial employment covered under Social Security, with an adjusted formula
for workers with 21 throughto 29 years of substantial covered employment, as shown in Table 3.6
Table 3.8
Table 3. WEP Reduction Falls with, by Years of Substantial Coverage
Years of Social Security Coverage
20 or
fewer
21
22
23
24
50%
55%
60%
25
26
27
28
29
30+
65%
70%
75%
80%
85%
90%
$171.20
$128.40
$85.60
$42.80
$0.00
First factor in formula:
40%
45%
Maximum dollar amount of monthly WEP reduction in
$428.00
$385.20
$342.40
$299.60
2016:a
$256.80
$214.00
Source: Years of Substantial Coverage
Years of Social Security Coverage |
|||||||||||
20 |
21 |
22 |
23 |
24 |
25 |
26 |
27 |
28 |
29 |
30+ |
|
First factor in formula: |
|||||||||||
40% |
45% |
50% |
55% |
60% |
65% |
70% |
75% |
80% |
85% |
90% |
|
| |||||||||||
$413.00 |
$371.70 |
$330.40 |
$289.10 |
$247.80 |
$206.50 |
$165.20 |
$123.90 |
$82.60 |
$41.30 |
$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.
.
Notes: The maximum dollar amount of the reduction under the WEP represents the difference between the
first bend point ($856.00 in 2016) multiplied by the 90% factor and the first bend point multiplied by the
applicable factor based on years of Social Security–covered employment. For example, if a worker with a noncovered pension has 20 years of substantial coverage, the maximum monthly WEP reduction is $770.40 (90% of
$856.00) minus $342.40 (40% of $856.00), which equals $428.00.
a. The 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 applies to benefits payable to retired andor disabled -worker beneficiaries and to dependent beneficiaries of affected worker beneficiariestheir eligible
dependents. It does not apply to survivor benefits.
. It does not apply to benefits for survivors.
The WEP also 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) workers who reached the age ofattained age 62, became disabled, or were first eligible for a pension from non-covered employment before 1986; (3) benefits from foreign Social Security systems that are based on a "totalization" agreement with the United States; and (4) people whose only non-covered employment that resulted in a pension was in military
7
For the worker shown in Table 2, with an AIME of $1,500 and a monthly benefit of $976.48 under the regular benefit
formula in 2016, the WEP reduction of $428.00 represents a cut of approximately 44% to the regular formula monthly
benefit amount. By comparison, a worker with an AIME of $4,000 would be entitled to a PIA of $1,752.48 under the
2016 regular benefit formula, and the same WEP reduction of $428 per month would represent a 24% reduction in this
worker’s monthly benefit amount.
8
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 2016, the “old-law” taxable wage
base is equal to $88,200; therefore, to earn credit for one year of substantial employment under the WEP, a worker
would have to earn at least $22,050 in Social Security-covered employment. For the thresholds for previous years, see
SSA, Windfall Elimination Provision, Publication No. 05-10045, January 2016, http://www.ssa.gov/pubs/EN-0510045.pdf. See also SSA, “Old-Law Base and Year of Coverage,” https://www.ssa.gov/oact/cola/yoc.html.
Congressional Research Service
3
Social Security: The Windfall Elimination Provision (WEP)
were first eligible for a pension from non-covered employment before 1986; (3) benefits from
foreign Social Security systems that are based on a totalization agreement with the United States;
and (4) people whose only non-covered employment that resulted in a pension was in military
service before 1957 or is based on railroad employment.9
service before 1957 or is based on railroad employment.
According to the Social Security Administration (SSA), as of December 2014, about 1.62015, nearly 1.7 million
Social Security beneficiaries were affected by the WEP, as shown in (Table 4. More than 1.4 million people (93%)). The overwhelming majority of
those affected by the WEP (about 93%) were retired workers. AboutApproximately 3% of all Social
Security beneficiaries (including disabled workers and dependentand spouse beneficiaries) and about 4% of
all retired -worker beneficiaries were affected by the WEP in December 2014.72015.10 Of retired workers
affected by the WEP, approximately 6160% were men.8
11
Table 4. Number of Beneficiaries in Current Payment Status with
Benefits Affected by WEP, by State and Type of BenefitBeneficiary, December 2015
Type of Beneficiary
State
Total
Total
1,692,609
Alabama
18,683
Retired
Workers
1,574,787
17,181
Disabled
Workers
15,823
269
Spouses and
Children
101,999
1,233
Alaska
9,578
9,088
92
398
Arizona
31,559
29,498
263
1,798
Arkansas
10,475
9,852
173
450
California
231,420
216,442
1,930
13,048
Colorado
54,223
51,186
707
2,330
Connecticut
17,504
16,727
123
654
3,959
3,761
38
160
Delaware
District of Columbia
7,831
7,511
91
229
Florida
94,191
87,802
779
5,610
Georgia
49,328
46,791
501
2,036
Hawaii
10,341
9,560
51
730
Idaho
7,244
6,748
75
421
Illinois
88,799
84,605
532
3,662
Indiana
16,034
15,055
184
795
8,099
7,682
51
366
Iowa
9
Totalization agreements are bilateral agreements that provide limited coordination of the U.S. Social Security
program with comparable social insurance programs of other countries. The agreements are intended primarily to
eliminate dual Social Security taxation based on the same work and provide benefit protection for workers who divide
their careers between the U.S. and a foreign country. See SSA, “U.S. International Social Security Agreements,”
https://www.ssa.gov/international/agreements_overview.html.
10
Data on the total Social Security beneficiary and retired-worker populations used in calculations are available from
the “Social Security Beneficiary Data” page on SSA’s website at https://www.ssa.gov/oact/ProgData/
beniesQuery.html.
11
SSA, Office of Research, Evaluation and Statistics, February 2016, unpublished table W01.
Congressional Research Service
4
Social Security: The Windfall Elimination Provision (WEP)
Type of Beneficiary
9,106
Retired
Workers
8,563
Kentucky
22,260
21,018
253
989
Louisiana
37,911
35,021
686
2,204
Maine
16,235
15,460
127
648
Maryland
46,812
44,224
442
2,146
Massachusetts
65,951
62,874
643
2,434
Michigan
20,534
19,066
252
1,216
Minnesota
16,710
15,846
123
741
Mississippi
9,539
8,881
143
515
Missouri
35,958
34,375
356
1,227
Montana
5,942
5,549
45
348
State
Kansas
Nebraska
Total
Disabled
Workers
107
Spouses and
Children
436
5,275
4,987
47
241
27,911
26,657
224
1,030
7,483
7,068
95
320
New Jersey
22,478
20,836
288
1,354
New Mexico
12,939
11,894
142
903
New York
31,624
29,254
347
2,023
North Carolina
29,049
27,408
251
1,390
North Dakota
2,311
2,172
17
122
Nevada
New Hampshire
Ohio
127,209
120,243
1,299
5,667
Oklahoma
17,418
16,170
229
1,019
Oregon
16,471
15,403
118
950
Pennsylvania
35,814
33,395
435
1,984
Rhode Island
5,315
5,048
58
209
South Carolina
17,996
16,900
156
940
South Dakota
3,860
3,685
29
146
Tennessee
20,021
18,721
200
1,100
Texas
157,234
147,386
1,359
8,489
Utah
13,247
12,169
117
961
Vermont
2,609
2,442
22
145
Virginia
48,308
44,992
310
3,006
Washington
31,082
28,640
253
2,189
6,170
5,615
108
447
Wisconsin
12,019
11,352
86
581
Wyoming
2,349
2,212
18
119
90,191
69,772
579
19,840
West Virginia
Outlying areas and
foreign countries
Source: Social Security Administration, Office of Research, Evaluation and Statistics, February 2016, unpublished
Table B.
Congressional Research Service
5
Social Security: The Windfall Elimination Provision (WEP)
, December 2014
State |
Total |
Type of Benefit |
||
|
Disabled Workers |
Spouses and Children |
||
Total |
1,623,795 |
1,506,792 |
16,613 |
100,390 |
Alabama |
18,403 |
16,829 |
297 |
1,277 |
Alaska |
9,027 |
8,544 |
100 |
383 |
Arizona |
30,055 |
28,013 |
279 |
1,763 |
Arkansas |
10,349 |
9,699 |
170 |
480 |
California |
220,783 |
206,125 |
2,022 |
12,636 |
Colorado |
51,459 |
48,447 |
728 |
2,284 |
Connecticut |
16,667 |
15,927 |
139 |
601 |
Delaware |
3,798 |
3,598 |
41 |
159 |
District of Columbia |
7,853 |
7,526 |
106 |
221 |
Florida |
90,015 |
83,719 |
819 |
5,477 |
Georgia |
47,217 |
44,637 |
530 |
2,050 |
Hawaii |
9,952 |
9,201 |
66 |
685 |
Idaho |
6,875 |
6,377 |
73 |
425 |
Illinois |
85,723 |
81,593 |
550 |
3,580 |
Indiana |
15,642 |
14,656 |
190 |
796 |
Iowa |
7,970 |
7,527 |
65 |
378 |
Kansas |
8,879 |
8,328 |
110 |
441 |
Kentucky |
21,279 |
19,963 |
276 |
1,040 |
Louisiana |
35,555 |
32,660 |
688 |
2,207 |
Maine |
15,501 |
14,714 |
133 |
654 |
Maryland |
45,630 |
43,023 |
464 |
2,143 |
Massachusetts |
62,035 |
59,068 |
653 |
2,314 |
Michigan |
19,905 |
18,421 |
259 |
1,225 |
Minnesota |
16,499 |
15,622 |
136 |
741 |
Mississippi |
9,348 |
8,662 |
144 |
542 |
Missouri |
34,584 |
33,002 |
366 |
1,216 |
Montana |
5,731 |
5,338 |
46 |
347 |
Nebraska |
5,136 |
4,856 |
50 |
230 |
Nevada |
26,043 |
24,838 |
225 |
980 |
New Hampshire |
7,235 |
6,813 |
107 |
315 |
New Jersey |
21,997 |
20,359 |
311 |
1,327 |
New Mexico |
12,652 |
11,559 |
164 |
929 |
New York |
30,960 |
28,589 |
369 |
2,002 |
North Carolina |
28,158 |
26,459 |
282 |
1,417 |
North Dakota |
2,274 |
2,139 |
16 |
119 |
Ohio |
120,859 |
113,918 |
1,294 |
5,647 |
Oklahoma |
17,171 |
15,874 |
260 |
1,037 |
Oregon |
15,752 |
14,711 |
119 |
922 |
Pennsylvania |
35,084 |
32,593 |
491 |
2,000 |
Rhode Island |
5,138 |
4,871 |
63 |
204 |
South Carolina |
17,348 |
16,202 |
183 |
963 |
South Dakota |
3,741 |
3,558 |
31 |
152 |
Tennessee |
19,383 |
18,078 |
212 |
1,093 |
Texas |
148,925 |
139,073 |
1,421 |
8,431 |
Utah |
12,887 |
11,795 |
134 |
958 |
Vermont |
2,527 |
2,360 |
21 |
146 |
Virginia |
47,349 |
43,977 |
340 |
3,032 |
Washington |
29,949 |
27,511 |
246 |
2,192 |
West Virginia |
6,064 |
5,497 |
111 |
456 |
Wisconsin |
11,729 |
11,049 |
87 |
593 |
Wyoming |
2,273 |
2,154 |
19 |
100 |
Outlying areas and foreign countries |
86,427 |
66,740 |
607 |
19,080 |
Source: Social Security Administration, Office of Research, Evaluation and Statistics, January 2015, 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.12 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.9
13
The purpose of the 1983 provision was to remove an unintended advantage that the regular Social
Security benefit formula provided to people who also had pensions from non-Social Security-coveredSecuritycovered 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
career-average earnings than the benefit that is provided to workers with high lifetime average earnings.
However, the formula does not differentiate between those who worked in low-paid jobs
throughout their careers and other workers who appear 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 their careers in jobs covered by Social Security—even highly paid
ones—also received the advantage of the "weighted" formula.
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 people with small pensions from non-covered
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 people who spend 30 years or more in Social
Security-covered work.
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.
Legislative proposals to alter the WEP have fallen into three general categories: (1) those that would entirely repeal the provision; (2) those that would phase in a WEP reduction only for beneficiaries whose income from a monthly Social Security benefit and a monthly pension from non-covered work total to a combined threshold amount, and (3) those that would replace the current WEP formula with an alternative computation.
As of June 15, 2015, two bills have been introduced in the 114th Congress, which would alter the WEP. H.R. 973, introduced by Representative Rodney Davis, would repeal the WEP. Repeal proposals have been repeatedly introduced over the past two decades but have not advanced. In 2008, SSA estimated that repealing the WEP would increase benefit outlays by around $20 billion over 5 years and $4014
12
Social Security Amendments of 1983 (P.L. 98-21). For more information on the 1983 amendments, see John A.
Svahn and Mary Ross, “Social Security Amendments of 1983: Legislative History and Summary of Provisions,” Social
Security Bulletin, vol. 46, no. 7 (July 1983), https://www.ssa.gov/policy/docs/ssb/v46n7/v46n7p3.pdf.
13
U.S. Congress, Committee of Conference, Social Security Amendments of 1983, conference report to accompany
H.R. 1900, 98th Cong., 1st sess., March 24, 1983, H.Rept. 98-47 (Washington: GPO, 1983), pp. 120-121,
http://www.finance.senate.gov/imo/media/doc/Conf-98-47.pdf.
14
See, for example, the Social Security Advisory Board, The Windfall Elimination Provision: It’s Time to Correct the
Math, October 1, 2015, http://www.ssab.gov/Portals/0/OUR_WORK/REPORTS/WEP_Position_Paper_2015.pdf.
Congressional Research Service
6
Social Security: The Windfall Elimination Provision (WEP)
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.15 First, because the WEP adjustment is confined to the first
bracket of the benefit formula ($856 in 2016), 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 2016 this threshold is $22,050 in Social Security-covered earnings); therefore, high
earners are more likely to benefit from the provision that phases out of the WEP for people with
between 21 and 30 years of covered employment.
Brown and Weisbenner found that the WEP does reduce benefits disproportionately for lowerearning 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 found that the WEP can also lead to
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 an adjustment in the WEP formula
applied to the AIME.
SSA estimated that in 2000, 3.5% of beneficiaries affected by the WEP had incomes below the
poverty line. For comparison purposes, at that time 8.5% of 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.16 This comparison implies that people 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.
Legislative Activity on the WEP
Legislative proposals to alter the WEP generally fall into three categories:
1. Bills that would repeal the provision outright;
2. Those that would phase in a WEP reduction only for beneficiaries whose income
from a monthly Social Security benefit and a monthly pension from non-covered
work total to a combined threshold amount; and
3. Those that would replace the current WEP formula with an alternative
computation.
The section below discusses select proposals introduced in the 114th Congress that would
eliminate, modify, or replace the WEP.
15
Jeffrey R. Brown and Scott Weisbenner, “The Distributional Effects of the Social Security Windfall Elimination
Provision,” Journal of Pension Economics and Finance, vol. 12, iss. 04 (October 2013), pp. 415-434, at
http://business.illinois.edu/weisbenn/RESEARCH/PAPERS/JPEF_Brown_Weisbenner.pdf.
16
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 people for whom SSA administrative records could be
matched.
Congressional Research Service
7
Social Security: The Windfall Elimination Provision (WEP)
H.R. 973 and S. 1651
H.R. 973 and S. 1651, identical bills both titled the Social Security Fairness Act of 2015, were
introduced by Representative Rodney Davis on February 13, 2015, and Senator Sherrod Brown
on June 23, 2015, respectively. The legislation would repeal the WEP as well as the Government
Pension Offset (GPO), which reduces the Social Security benefits paid to spouses and widow(er)s
of insured workers if the spouse or widow(er) also receives a pension based on government
employment not covered by Social Security.17 The elimination of the WEP and GPO would apply
to benefits payable for months after December 2015.
SSA’s Office of the Chief Actuary (OACT) projects that repealing both the WEP and GPO would
reduce the long-range actuarial balance (i.e., increase the net long-term cost) of the Social
Security trust funds on a combined basis by 0.13% of taxable payroll.18 The proposal would also
change the projected depletion year of the combined Social Security trust funds from 2034 to
2033.19 (The depletion year is the year in which the balance of the trust fund falls to zero.)
In 2007, SSA estimated that repealing only the WEP would increase benefit outlays by $16.7
billion over five years and $40.1 billion over 10 years.20
billion over 10 years.10
H.R. 711,H.R. 711
H.R. 711, the Equal Treatment of Public Servants Act of 2015, was introduced by Representative
Kevin Brady, on February 4, 2015. The bill would replace the WEP with a new formula“Public Servant
Fairness Formula” (PSF) for those who become eligible for Social Security retirement or disability benefits after 2016. For such workers who had both covered and non-covered earnings, a new "proportional" computation would be used. First, the regular Social Security formula would be applied to all earnings, whether covered or non-covered. As a result, the progressivity of the benefit would be based on the worker's total lifetime earnings. Second, the resulting benefit would be multiplied by the share of the AIME that came from covered earnings, so that the benefit would be proportional to the amount of Social Security taxes paid.
This proposal is expected to yield a smaller reduction than occurs under the WEP for workers with lower average total career wages and a greater reduction for workers with higher average total career wages.
Under H.R. 711, workers eligible for Social Security benefits in 2016 and earlier (including current beneficiaries) would be subject to the current WEP but would receive a rebate to offset the WEP formula's impact. The savings from the application of the new formula on future retirees addressed above, combined with WEP application to a larger pool of beneficiaries due to enhanced reporting accountability, would be redirected to current beneficiaries. The Office of the Chief Actuary at SSA has estimated that H.R. 5697, a proposal similar to H.R. 711 introduced by Representative Brady in the 113th Congress, would remain cost neutral by providing a 32% rebate to pre-2017 eligible workers. Thus, a beneficiary with a monthly benefit reduced by $413 per month by the current WEP formula would have the WEP reduction softened by $132 (32% of $413), lessening the WEP monthly impact to $281.11
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.12 First, because the WEP adjustment is confined to the first bracket of the benefit formula ($826 in 2015), 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 2015 this threshold is $22,050 in Social Security-covered earnings); therefore, high earners are more likely to benefit from the provision that phases out of the WEP for people with between 21 and 30 years of covered employment.
Brown and Weisbenner found that the WEP does reduce benefits disproportionately for lower-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 found that the WEP can also lead to 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 an adjustment in the WEP formula applied to the AIME.
SSA estimated that in 2000, 3.5% of beneficiaries affected by the WEP had incomes below the poverty line. For comparison purposes, at that time 8.5% of 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.13 This comparison implies that people 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
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. |
2. |
The replacement rate is the ratio of a Social Security benefit to a worker's pre-retirement income. |
3. |
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 [author name scrubbed]. |
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. |
|
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 2015, the "old-law" taxable wage base is equal to $88,200, therefore to earn credit for one year of "substantial" employment under the WEP a worker would have to earn at least $22,050 in Social Security-covered employment. For the thresholds for previous years, see Social Security Administration, "Windfall Elimination Provision," 2015, http://www.ssa.gov/pubs/EN-05-10045.pdf. |
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 2014," at http://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/2014-12.html. |
8. |
Social Security Administration, Office of Research, Evaluation and Statistics, January 2015, unpublished table W01. |
9. |
Conference report to accompany H.R. 1900, 98th Cong., March 24, 1983 (Washington: GPO, 1983), p. 120. |
10. |
Testimony of David A. Rust, acting deputy commissioner for Disability and Income Security Programs to the U.S. House of Representatives' Committee on Ways and Means, Social Security Subcommittee, January 16, 2008, at http://www.socialsecurity.gov/legislation/testimony_011608.html. That estimate has not been updated. |
11. |
Actuarial memorandum to Rep. Kevin Brady on H.R. 5697 (114th Congress), U.S. Social Security Administration, Office of the Chief Actuary, November 13, 2014, at http://www.socialsecurity.gov/oact/solvency/index.html. |
12. |
Jeffrey R. Brown and Scott Weisbenner, "The Distributional Effects of the Social Security Windfall Elimination Provision," Journal of Pension Economics and Finance, vol. 12, iss. 04 (October 2013), pp. 415-434, at http://business.illinois.edu/weisbenn/RESEARCH/PAPERS/JPEF_Brown_Weisbenner.pdf. |
13. |
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 people for whom SSA administrative records could be matched. |