Social Security: The Windfall Elimination Provision (WEP)

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    Social Security: The Windfall Elimination
Provision (WEP)
William R. Morton
Analyst in Income Security
May 25, 2016

Congressional Research Service
7-5700
www.crs.gov
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 small portion
of their careers in Social Security-covered employment. Opponents contend the provision is
imprecise and can be unfair.

Congressional Research Service

 Social Security: The Windfall Elimination Provision (WEP)

Contents
Background ..................................................................................................................................... 1
How the Windfall Elimination Provision Works ............................................................................. 2
Who Is Affected by the WEP? ......................................................................................................... 4
Legislative History and Rationale ................................................................................................... 6
Arguments for the WEP ............................................................................................................ 6
Arguments Against the WEP ..................................................................................................... 6
The WEP’s Impact on Low-Income Workers .................................................................................. 7
Legislative Activity on the WEP ..................................................................................................... 7
H.R. 973 and S. 1651 ................................................................................................................ 8
H.R. 711 .................................................................................................................................... 8
President’s FY2017 Budget...................................................................................................... 11

Tables
Table 1. Social Security Benefit Formula in 2016........................................................................... 1
Table 2. Monthly PIA for a Worker with Average Indexed Monthly Earnings of $1,500,
Retiring in 2016 with 20 or Fewer Years of Covered Employment ............................................. 2
Table 3. WEP Reduction, by Years of Substantial Coverage........................................................... 3
Table 4. Number of Beneficiaries in Current Payment Status with Benefits Affected by
WEP, by State and Type of Beneficiary, December 2015 ............................................................ 4

Contacts
Author Contact Information .......................................................................................................... 12

Congressional Research Service

 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.1 The benefit formula, however, does not distinguish 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” that would exist in the absence of the
 Provision (WEP)
    June 1, 2016
            (98-35)
          Jump to Main Text of ReportContentsBackground
How the Windfall Elimination Provision Works
Who Is Affected by the WEP?
Legislative History and Rationale
Arguments for the WEP
Arguments Against the WEP
The WEP's Impact on Low-Income Workers
Legislative Activity on the WEP
H.R. 973 and S. 1651
H.R. 711
President's FY2017 Budget

      Tables
      Table 1. Social Security Benefit Formula in 2016
Table 2. Monthly PIA for a Worker with Average Indexed Monthly Earnings of $1,500, Retiring in 2016 with 20 or Fewer Years of Covered Employment
Table 3. WEP Reduction, by Years of Substantial Coverage
Table 4. Number of Beneficiaries in Current Payment Status with  Benefits Affected by WEP, by State and Type of Beneficiary, December 2015

    
SummaryThe 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.1 The benefit formula, however, does not distinguish 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" 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”).2 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 as average indexed monthly earningsearnings (AIME), is found by dividing the annual average by 12.

    The Social Security benefit formula is progressive, replacing a greater share of average lifetime
 earnings for low-wage workers than for high-wage workers. The benefit formula applies three
 factors—90%, 32%, and 15%—to three different levels, or brackets, of AIME.33 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
 62, die, or become disabled in 2016, the PIA is determined in Table 1  as follows:

    
      
        Table 1. Social Security Benefit Formula in 2016
Factor

Average Indexed Monthly Earnings (AIME)

90%

of the first $856, plus

32%

of AIME over $856 and through $5,157, plus

15%

of AIME over $5,157

Source: 
      
      
        
          Factor

          Average Indexed Monthly Earnings (AIME)

        

          90%

          of the first $856, plus

        

          32%

          of AIME over $856 and through $5,157, plus

        

          15%

          of AIME over $5,157

        

      
        Source: CRS, based on Social Security Administration, Office of the Chief Actuary, “"Benefit Formula Bend
 Points,” " https://www.ssa.gov/oact/cola/bendpoints.html.

.
      
    
    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.

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 Social Security: The Windfall Elimination Provision (WEP)

'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 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 rate4rate4 for workers who have split their careers between Social SecuritycoveredSecurity-covered and non-covered jobs is sometimes referred to as a “"windfall.”5

"5
    How the Windfall Elimination Provision Works

    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]).66 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 2016 for someone with a 40%
 factor.

    
      
        Table 2. Monthly PIA for a Worker with Average Indexed Monthly Earnings of $1,500,
 Retiring in 2016 with 20 or Fewer Years of Covered Employment
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
and through $4,980

$206.08

15% over $4,980
Total

0.00
$976.48

15% over $4,980
Total

0.00
$548.48

Source: CRS.
Note: To simplify the example, rounding conventions that would normally apply are not used here.

Under the WEP formula, the monthly benefit is $428.00 ($976.48-$548.48) 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%), 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 $856, the
WEP reduction remains a flat $428 per month. For example, if the worker had an AIME of
$4,000 instead of $1,500, the WEP reduction would still be $428 per month. The WEP therefore

4

The replacement rate is the ratio of a Social Security benefit to a worker’s pre-retirement income.
The WEP is sometimes confused with the Government Pension Offset (GPO), which reduces 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. For more information on the GPO, please refer to CRS Report
RL32453, Social Security: The Government Pension Offset (GPO).
6
Sections 215(a)(7) and (d)(3) of the Social Security Act; 42 U.S.C. §§415(a)(7) and (d)(3). See also 20 C.F.R.
§§404.213 and 404.243 as well as SSA, Program Operations Manual System, “RS 00605.360 WEP Applicability,”
June 24, 2013, http://policy.ssa.gov/poms.nsf/lnx/0300605360. Federal service where Social Security taxes are
withheld (i.e., Federal Employees’ Retirement System or CSRS Offset) is not affected by the WEP.
5

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 Social Security: The Windfall Elimination Provision (WEP)

causes a proportionally larger reduction in benefits for workers with lower AIMEs and monthly
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 employment covered under Social Security, with an adjusted formula
Regular Formula
Windfall Elimination Formula
90% of first $856

              

                
                  $770.40
                
40% of first $856

              

                
                  $342.40
                

            
          
        
        
          
            32% of earnings over $856and through $5,157
          
          
            
              

                
                  $206.08
                

            
          
          
            32% of earnings over $856and through $5,157
          
          
            
              

                
                  $206.08
                
15% over $5,157

              

                
                  0.00
                
15% over $5,157

              

                
                  0.00
                
Total

              

                
                  $976.48
                
Total

              

                
                  $548.48
                
Source: CRS.
Note: To simplify the example, rounding conventions that would normally apply are not used here. 
Under the WEP formula, the monthly benefit is $428.00 ($976.48-$548.48) 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%), 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 $856, the WEP reduction remains a flat $428 per month. For example, if the worker had an AIME of $4,000 instead of $1,500, the WEP reduction would still be $428 per month. The WEP therefore causes a proportionally larger reduction in benefits for workers with lower AIMEs and monthly 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 employment covered under Social Security, with an adjusted formula for workers with 21 to 29 years of substantial covered employment, as shown in Table 3.8
.8 
    
      
        Table 3. WEP Reduction, 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: Social Security Administration, “How the Windfall Elimination Provision Can Affect Your Social
Security Benefit,” Years of Social Security Coverage
20 or fewer
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%

          
        
        
          
            Maximum dollar amount of monthly WEP reduction in 2016:a$428.00
$385.20 
$342.40 
$299.60 
$256.80 
$214.00 
$171.20 
$128.40 
$85.60 
$42.80 
$0.00 
Source: Social Security Administration, "How the Windfall Elimination Provision Can Affect Your Social Security Benefit," http://www.socialsecurity.gov/retire2/wep-chart.htm.
.
        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 noncoverednon-covered 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. 
        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 or disabled-worker beneficiaries and their eligible
 dependents. It does notnot apply to survivor benefits.

    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 attained age 62, became disabled, or
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.

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 Social Security: The Windfall Elimination Provision (WEP)

 Congress in office on December 31, 1983); (2) workers who attained 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
 service before 1957 or is based on railroad employment.9

9
    Who Is Affected by the WEP?

    According to the Social Security Administration (SSA), as of December 2015, nearly 1.7 million
 Social Security beneficiaries were affected by the WEP (Table 4). The overwhelming majority of
 those affected by the WEP (about 93%) were retired workers. Approximately 3% of all Social
 Security beneficiaries (including disabled workers and dependent beneficiaries) and about 4% of
 all retired-worker beneficiaries were affected by the WEP in December 2015.1010 Of retired workers
 affected by the WEP, approximately 60% were men.11
11
    
      
        Table 4. Number of Beneficiaries in Current Payment Status with
Benefits Affected by WEP, by State and Type of Beneficiary, 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.

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 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.

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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.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 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
career-average earnings than the benefit 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.

Arguments for the WEP
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.

Arguments Against the WEP
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.14

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.

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 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.

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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

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 “Public Servant
Fairness Formula” (PSF) for those who become eligible for Social Security retirement or
disability benefits after 2016 and have earnings from non-covered employment after 1977. Under
the PSF, the worker’s AIME would be calculated using the combined earnings from service in
both covered and non-covered employment. Next, SSA would calculate the worker’s basic
17

CRS Report RL32453, Social Security: The Government Pension Offset (GPO). See also SSA, Government Pension
Offset, July 2015, https://www.ssa.gov/pubs/EN-05-10007.pdf.
18
Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Sherrod Brown, U.S. Senate, February 24, 2016,
https://www.ssa.gov/oact/solvency/SBrown_20160224.pdf. The projection is based on the intermediate assumptions of
the 2015 Social Security trustees report. It also assumes that the proposal would apply to benefits payable for months
after December 2016. Actuarial balance is the difference between annual income and cost summarized over a 75period (with some adjustments). Actuarial balance is expressed as a percentage of taxable payroll, which is the total
amount of earnings in the economy that is subject to Social Security taxes (with some adjustments). In their 2015 report
and under their intermediate assumptions, the trustees project that the long-range actuarial balance of the Social
Security trust funds on a combined basis is -2.68% of taxable payroll. A negative balance is referred to as an actuarial
deficit. Enactment of the proposal is projected to increase the actuarial deficit by 0.13 percentage points of taxable
payroll, to 2.82%. (Total does not equal subtotals due to rounding.)
19
When a trust fund is depleted, it no longer has any asset reserves (i.e., U.S. Treasury securities); however, it
continues to receive income from payroll taxes and the taxation of benefits. See CRS Report RL33028, Social Security:
The Trust Funds; and CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?. See
also CRS Report RL33028, Social Security: The Trust Funds.
20
Testimony of David A. Rust, acting deputy commissioner for disability and income security programs, SSA, in U.S.
Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security Benefits for
Economically Vulnerable Beneficiaries, 110th Cong., 2nd sess., January 16, 2008, http://www.socialsecurity.gov/
legislation/testimony_011608.html. SSA’s 2007 estimate of the effects of repealing the WEP was based on H.R. 82, the
Social Security Fairness Act of 2007, which was introduced in the 110th Congress by Representative Howard L.
Berman. The WEP provisions in H.R. 82 are identical to the WEP provisions in H.R. 973 and S. 1651. See also U.S.
Congress, Senate Committee on Finance, Subcommittee on Social Security, Pensions, and Family Policy, Government
Pension Offset (GPO) and Windfall Elimination Provision (WEP): Policies Affecting Pensions from Work Not Covered
by Social Security, 110th Cong., 1st sess., November 6, 2007, 110-903 (Washington: GPO, 2007), p. 38,
http://www.finance.senate.gov/imo/media/doc/51475.pdf.

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benefit, or PIA, from the combined AIME by applying the 90%, 32%, and 15% factors used in
the regular benefit formula. SSA would then divide the combined PIA by the combined AIME to
derive the worker’s replacement rate based on all covered and non-covered earnings. (A
replacement rate is the share of a worker’s average lifetime earnings that the program benefit
replaces.) Finally, the replacement rate based on combined earnings would be applied to an AIME
calculated using only earnings from covered employment to determine the PSF-adjusted PIA.
𝑃𝑆𝐹 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑 𝑃𝐼𝐴 = (

𝑃𝐼𝐴𝐶𝑜𝑚𝑏𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
) 𝑥 𝐴𝐼𝑀𝐸𝐶𝑜𝑣𝑒𝑟𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑂𝑛𝑙𝑦
𝐴𝐼𝑀𝐸𝐶𝑜𝑚𝑏𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠

Viewed another way, the PSF would apply the regular Social Security benefit formula to all past
earnings from covered and non-covered employment. The resulting benefit, or combined PIA,
would then be reduced by the ratio of the AIME computed with only covered earnings to an
AIME computed using combined earnings. The reduction would be smaller for workers with
combined earnings derived mostly from service performed in covered employment than for
workers whose combined average lifetime earnings stem primarily from non-covered
employment.
It is important to note that unlike the WEP, which applies only to worker beneficiaries in receipt
 Benefits Affected by WEP, by State and Type of Beneficiary, December 2015
      
      
        
          
            State
Total
Type of Beneficiary

          
        
        
           
          
           
          
          
            Retired Workers
          
          
            Disabled Workers
Spouses and Children
Total
1,692,609
1,574,787
15,823
101,999
Alabama
18,683
17,181
269
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
Delaware
3,959
3,761
38
160
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
Iowa
8,099
7,682
51
366
Kansas
9,106
8,563
107
436
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
Nebraska
5,275
4,987
47
241
Nevada
27,911
26,657
224
1,030
New Hampshire
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
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
West Virginia
6,170
5,615
108
447
Wisconsin
12,019
11,352
86
581
Wyoming
2,349
2,212
18
119
Outlying areas and foreign countries
90,191
69,772
579
19,840
Source: Social Security Administration, Office of Research, Evaluation and Statistics, February 2016, 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.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-covered 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 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. 

    Arguments for the WEP
    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.

    Arguments Against the WEP
    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.14

    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 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.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.
H.R. 973 and S. 1651H.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
H.R. 711H.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 "Public Servant Fairness Formula" (PSF) for those who become eligible for Social Security retirement or disability benefits after 2016 and have earnings from non-covered employment after 1977. Under the PSF, the worker's AIME would be calculated using the combined earnings from service in both covered and non-covered employment. Next, SSA would calculate the worker's basic benefit, or PIA, from the combined AIME by applying the 90%, 32%, and 15% factors used in the regular benefit formula. SSA would then divide the combined PIA by the combined AIME to derive the worker's replacement rate based on all covered and non-covered earnings. (A replacement rate is the share of a worker's average lifetime earnings that the program benefit replaces.) Finally, the replacement rate based on combined earnings would be applied to an AIME calculated using only earnings from covered employment to determine the PSF-adjusted PIA.
PSF Adjusted PIA= PIACombined EarningsAIMECombined Earnings x AIMECovered Earnings Only
Viewed another way, the PSF would apply the regular Social Security benefit formula to all past earnings from covered and non-covered employment. The resulting benefit, or combined PIA, would then be reduced by the ratio of the AIME computed with only covered earnings to an AIME computed using combined earnings. The reduction would be smaller for workers with combined earnings derived mostly from service performed in covered employment than for workers whose combined average lifetime earnings stem primarily from non-covered employment. 

    It is important to note that unlike the WEP, which applies only to worker beneficiaries in receipt of pensions based on non-covered earnings, the PSF would apply to all worker beneficiaries with
non with non-covered earnings, regardless of whether they are eligible for any pension benefits based on
 those earnings. As with the WEP, the PSF would no longer apply upon the death of the retired or
 disabled-worker beneficiary. Benefits payable to the deceased worker’'s dependents (now
 survivors) would be recalculated under the regular benefit formula based on covered earnings
 only.

    Replacing the WEP with the PSF for workers eligible for Social Security after December 2016
 would increase cost to the program by reducing the magnitude of the benefit offset for most
 workers in receipt of pensions based on non-covered employment; however, it would also result
 in program savings by reducing benefits for a larger number of future beneficiaries than under
 current law. OACT estimates that the net savings from the PSF would be about $13.6 billion for
 2017 through 2025.21
21 
    According to SSA’'s chief actuary, if the PSF were applied to current beneficiaries with non-coveredwith noncovered earnings, 84% of the roughly 1.5 million retired or disabled-worker beneficiaries affected
 by the WEP in 2016, or approximately 1.25 million worker beneficiaries, would see an increase in
 their monthly benefit amount.2222 OACT projects that the average increase for this group would be
 about $77 per month. The remaining 250,000 worker beneficiaries currently affected by the WEP
 would have their monthly benefit reduced by an additional $13 on average.2323 Of the roughly 15
million worker beneficiaries in 2016 with earnings from non-covered employment after 1977
21

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Kevin Brady, U.S. House of Representatives,
March 17, 2016, p. 2, https://www.ssa.gov/oact/solvency/KBrady_20160317.pdf (hereinafter “OACT Cost Estimate for
H.R. 711”).
22
Testimony of Stephen C. Goss, Chief Actuary, SSA, in U.S. Congress, House Committee on Ways and Means,
Subcommittee on Social Security, Social Security and Public Servants: Ensuring Equal Treatment, hearing on H.R.
711, the Equal Treatment of Public Servants Act of 2015, 114th Cong., 2nd sess., March 22, 2016, p. 3,
https://www.ssa.gov/OACT/testimony/HouseWM_20160322.pdf (hereinafter “Testimony of Stephen C. Goss”). The
chief actuary’s submitted testimony stated that there are roughly 1.5 million retired or disabled-worker beneficiaries in
2016 whose benefits are reduced by the WEP. This figure differs from the 1.6 million retired or disabled-worker
beneficiaries shown in Table 4 who were affected by the WEP in December 2015.
23
Ibid.

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whose benefits  million worker beneficiaries in 2016 with earnings from non-covered employment after 1977 whose benefits are not currently reduced by the WEP, 14 million worker beneficiaries, or about
 93%, would have their monthly benefit reduced by about $27 on average. These projections are
 for illustrative purposes only, as the PSF would apply to new beneficiaries  with non-covered
earnings earnings starting in 2017.

    In addition to establishing a new formula for future worker beneficiaries with non-covered
 earnings, H.R. 711 would apply the WEP to some current beneficiaries with non-covered earnings
 whose benefits are not reduced by the WEP under current law. Specifically, beginning in 2017,
 the bill would require SSA to re-compute the past and future benefits of workers who meet the
 following criteria:





Were eligible for Social Security retirement or disability benefits as of December
 2016;

    Have at least one year of non-covered earnings in SSA’'s records;

    Are not subject to a WEP reduction for December 2016; and

    Have fewer than 30 years of coverage.24

24This provision would reduce benefits for (1) worker beneficiaries in receipt of pensions based on
 non-covered earnings who are not subject to the WEP reduction due to incomplete or inaccurate
 information in SSA’'s records, and (2) beneficiaries who worked in non-covered employment but
 are not eligible for any pension benefits based on non-covered earnings. Beneficiaries who meet
 the aforementioned requirements would be exempt from the modified WEP rules if they obtain
 evidence that they are not in receipt of any pension payments based on non-covered earnings or
 will not be in receipt of such payments in the future. According to SSA’'s chief actuary, Stephen C.
 Goss, affected beneficiaries

    would be required to obtain by the end of 2016 certification from any employer who paid
 him or her non-covered earnings. This certification would indicate whether the worker is
 vested for a pension, and when and how much pension has been received. A WEP
 reduction would be applied if it is determined to be warranted for past or future benefits.
 If the WEP reduction is applicable for past benefits, an overpayment would be
 established to be repaid by the beneficiary, principally through recovery from his or her
 future benefits. If an individual does not obtain certification, then the WEP would be
 applied for past and future benefits limited only by the number of substantial years of
 covered earnings.25

25
    The bill does not direct SSA to inform affected beneficiaries about this change, nor does it
 provide funds for SSA to do so. Any outreach on the part of SSA is assumed to be voluntary and
 subject to available funds in its discretionary Limitation on Administrative Expenses account.26
26
    OACT estimates that there are about 7.0 million worker beneficiaries in 2016 with some noncoverednon-covered earnings, no reduction under the WEP, and fewer than 30 years of coverage.2727 The
 agency projects that up to 10% of these worker beneficiaries, or about 700,000 individuals, would
 have some of their past or future benefits reduced by the bill’'s modified WEP rules.2828 OACT
 stresses that this projection is highly uncertain, as the actual number of affected beneficiaries
24

“Years of coverage” refers to the number of years of substantial earnings in covered employment. See footnote 8.
OACT Cost Estimate for H.R. 711, pp. 1-2.
26
For more information on SSA’s administrative budget, see CRS Report R41716, The Social Security Administration
(SSA): Budget Request and Appropriations.
27
Testimony of Stephen C. Goss, pp. 4-5.
28
Ibid., p. 4.
25

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 would depend on how many individuals obtain valid certification. For those beneficiaries affected
 by the modified WEP rules, OACT estimates that the average amount of the overpayment made
 before 2017 that would be recovered in 2017 through 2025 would be about $8,000. The average
 total reduction for future benefits through 2025, net of the 50% rebate (discussed below), would
 also be about $8,000.29
29
    Lastly, H.R. 711 would reduce the amount of the WEP offset (i.e., increase benefits) starting in
 2017 for workers affected by the WEP under current law as well as those whose benefits would
 be reduced under the bill’'s modified WEP rules. The bill would limit this reduction, or rebate, to
 not more than 50% of the difference between the PIA calculated using the regular benefit formula
 and the PIA calculated using the WEP formula (i.e., up to 50% of the amount of the WEP
 reduction). If the full 50% rebate were applied in 2016, the maximum dollar amount of the WEP
 reduction would decrease from $428 to $214. The size of the rebate percentage would be
 determined by the commissioner of Social Security based on the amount of savings generated
 from enactment of the bill. H.R. 711 would require SSA to promulgate the determination on or
 before November 1, 2016.

    OACT estimates that the savings from H.R. 711 would permit the full 50% rebate to be applied to
 the benefits of workers affected by the current law WEP as well as those who would be subject to
 the bill’'s modified WEP rules starting in 2017. After applying the full rebate, OACT projects that
 the bill would result in net savings of $3.5 billion for 2017 through 2025. Over the long-range
 period, the net effect of the bill on the actuarial balance of the combined trust funds would be an
 increase (improvement) of 0.05% of taxable payroll.30

President’30
    President's FY2017 Budget

    The President’'s FY2017 budget includes a proposal to replace the WEP with a new formula for
 workers with non-covered earnings who become eligible for Social Security benefits on or after
 January 1, 2027.3131 The new formula under the President’'s proposal is the same as the PSF under
 H.R. 711 (see the previous section). The President’'s proposal would also replace the GPO
 formula with one based on both covered and non-covered earnings for spouses and widow(er)s
 who become eligible for Social Security benefits on or after January 1, 2027.32
32
    In addition, the President’'s FY2017 budget includes a companion proposal to improve the
 collection of pension data from states and localities for purposes of administering the WEP and
 GPO for current beneficiaries and those who become eligible for benefits prior to 2027. The
 proposal would require state and local government pension providers to report information on
 pensions based on non-covered employment via an automated data exchange. With this
 information, SSA would be able to identify and reduce the benefits of more worker beneficiaries
 receiving a pension based on non-covered earnings than the agency otherwise could under current
 law. OACT estimates that the improved collection of pension data would result in cost savings of
29

Ibid., p.5.
OACT Cost Estimate for H.R. 711, p. 3.
31
U.S. Office of Management and Budget, Appendix, Budget of the U.S. Government, Fiscal Year 2017, February
2016, p. 1231, https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/ssa.pdf.
32
For more information on the GPO proposal, see testimony of Samara Richardson, Acting Associate Commissioner,
Office of Income Security Programs, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on
Social Security,  about $8.0 billion through FY2026.33 Over the long-range period, the net effect of the two proposals on the actuarial balance of the combined trust funds would be an increase (improvement) of 0.08% of taxable payroll. 
    During testimony before the House Committee on Ways and Means, Subcommittee on Social Security, in March of this year, SSA's chief actuary stated that "both H.R. 711 and the President's proposal in the Fiscal Year 2017 Budget would ultimately result in a more consistent and logical adjustment to the primary benefit amounts for workers with career earnings split between covered and non-covered employment."34
Author Contact Information
[author name scrubbed], Analyst in Income Security
        ([email address scrubbed], [phone number scrubbed])
      
Footnotes1.
            
        
           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/EN-05-10072.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.
4.
            
        
           The replacement rate is the ratio of a Social Security benefit to a worker's pre-retirement income.
5.
            
        
           The WEP is sometimes confused with the Government Pension Offset (GPO), which reduces 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. For more information on the GPO, please refer to CRS Report RL32453, Social Security: The Government Pension Offset (GPO).
6.
            
        
           Section 215(a)(7) and (d)(3) of the Social Security Act; 42 U.S.C. §415(a)(7) and (d)(3). See also 20 C.F.R. §§404.213 and 404.243 as well as SSA, Program Operations Manual System, "RS 00605.360 WEP Applicability," June 24, 2013, http://policy.ssa.gov/poms.nsf/lnx/0300605360. Federal service where Social Security taxes are withheld (i.e., Federal Employees' Retirement System or CSRS Offset) is not affected by the WEP.
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 $1,776.48 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-05-10045.pdf. See also SSA, "Old-Law Base and Year of Coverage," https://www.ssa.gov/oact/cola/yoc.html.
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.
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.
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.
17.
            
        
           CRS Report RL32453, Social Security: The Government Pension Offset (GPO). See also SSA, Government Pension Offset, July 2015, https://www.ssa.gov/pubs/EN-05-10007.pdf.
18.
            
        
           Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Sherrod Brown, U.S. Senate, February 24, 2016, https://www.ssa.gov/oact/solvency/SBrown_20160224.pdf. The projection is based on the intermediate assumptions of the 2015 Social Security trustees report. It also assumes that the proposal would apply to benefits payable for months after December 2016. Actuarial balance is the difference between annual income and cost summarized over a 75-period (with some adjustments). Actuarial balance is expressed as a percentage of taxable payroll, which is the total amount of earnings in the economy that is subject to Social Security taxes (with some adjustments). In their 2015 report and under their intermediate assumptions, the trustees project that the long-range actuarial balance of the Social Security trust funds on a combined basis is -2.68% of taxable payroll. A negative balance is referred to as an actuarial deficit. Enactment of the proposal is projected to increase the actuarial deficit by 0.13 percentage points of taxable payroll, to 2.82%. (Total does not equal subtotals due to rounding.)
19.
            
        
           When a trust fund is depleted, it no longer has any asset reserves (i.e., U.S. Treasury securities); however, it continues to receive income from payroll taxes and the taxation of benefits. See CRS Report RL33028, Social Security: The Trust Funds; and CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?. See also CRS Report RL33028, Social Security: The Trust Funds.
20.
            
        
           Testimony of David A. Rust, acting deputy commissioner for disability and income security programs, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security Benefits for Economically Vulnerable Beneficiaries, 110th Cong., 2nd sess., January 16, 2008, http://www.socialsecurity.gov/legislation/testimony_011608.html. SSA's 2007 estimate of the effects of repealing the WEP was based on H.R. 82, the Social Security Fairness Act of 2007, which was introduced in the 110th Congress by Representative Howard L. Berman. The WEP provisions in H.R. 82 are identical to the WEP provisions in H.R. 973 and S. 1651. See also U.S. Congress, Senate Committee on Finance, Subcommittee on Social Security, Pensions, and Family Policy, Government Pension Offset (GPO) and Windfall Elimination Provision (WEP): Policies Affecting Pensions from Work Not Covered by Social Security, 110th Cong., 1st sess., November 6, 2007, 110-903 (Washington: GPO, 2007), p. 38, http://www.finance.senate.gov/imo/media/doc/51475.pdf.
21.
            
        
           Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Kevin Brady, U.S. House of Representatives, March 17, 2016, p. 2, https://www.ssa.gov/oact/solvency/KBrady_20160317.pdf (hereinafter "OACT Cost Estimate for H.R. 711").
22.
            
        
           Testimony of Stephen C. Goss, Chief Actuary, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security and Public Servants: Ensuring Equal Treatment, hearing on H.R. 711, the Equal
 Treatment of Public Servants Act of 2015, 114th114th Cong., 2nd2nd sess., March 22, 2016, p. 3, https://www.ssa.gov/OACT/testimony/HouseWM_20160322.pdf (hereinafter "Testimony of Stephen C. Goss"). The chief actuary's submitted testimony stated that there are roughly 1.5 million retired or disabled-worker beneficiaries in 2016 whose benefits are reduced by the WEP. This figure differs from the 1.6 million retired or disabled-worker beneficiaries shown in Table 4 who were affected by the WEP in December 2015.
        
      
      
        23.
            
        
           Ibid.
24.
            
        
           "Years of coverage" refers to the number of years of substantial earnings in covered employment. See footnote 8.
25.
            
        
           OACT Cost Estimate for H.R. 711, pp. 1-2.
26.
            
        
           For more information on SSA's administrative budget, see CRS Report R41716, The Social Security Administration (SSA): Budget Request and Appropriations.
27.
            
        
           Testimony of Stephen C. Goss, pp. 4-5.
28.
            
        
           Ibid., p. 4.
29.
            
        
           Ibid., p.5.
30.
            
        
           OACT Cost Estimate for H.R. 711, p. 3.
31.
            
        
           U.S. Office of Management and Budget, Appendix, Budget of the U.S. Government, Fiscal Year 2017, February 2016, p. 1231, https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/ssa.pdf.
32.
            
        
           For more information on the GPO proposal, see testimony of Samara Richardson, Acting Associate Commissioner, Office of Income Security Programs, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security and Public Servants: Ensuring Equal Treatment, hearing on H.R. 711, the Equal Treatment of Public Servants Act of 2015, 114th Cong., 2nd sess., March 22, 2016, https://www.ssa.gov/legislation/testimony_032216.html.
33.
            
        
           https://www.ssa.gov/legislation/
testimony_032216.html.
30

Congressional Research Service

11

 Social Security: The Windfall Elimination Provision (WEP)

about $8.0 billion through FY2026.33 Over the long-range period, the net effect of the two
proposals on the actuarial balance of the combined trust funds would be an increase
(improvement) of 0.08% of taxable payroll.
During testimony before the House Committee on Ways and Means, Subcommittee on Social
Security, in March of this year, SSA’s chief actuary stated that “both H.R. 711 and the President’s
proposal in the Fiscal Year 2017 Budget would ultimately result in a more consistent and logical
adjustment to the primary benefit amounts for workers with career earnings split between covered
and non-covered employment.”34

Author Contact Information
William R. Morton
Analyst in Income Security
wmorton@crs.loc.gov, 7-9453

33

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Shaun Donovan, OMB Director, February 10,
 2016, p. 1, https://www.ssa.gov/oact/solvency/FY2017Budget_20160210.pdf.
34
.
        
      
      
        34.
            
        
           Testimony of Stephen C. Goss, p. 6.

Congressional Research Service

12

 
        
      
    
  
Factor	Average Indexed Monthly Earnings (AIME)
90%	of the first $856, plus
32%	of AIME over $856 and through $5,157, plus
15%	of AIME over $5,157