Social Security: The Windfall Elimination
Provision (WEP)
Alison M. Shelton
Analyst in Income Security
January 18, 2011
The House Ways and Means Committee is making available this version of this Congressional Research
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works exclusively for the United States Congress, providing policy and legal analysis to Committees and
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Social Security: The Windfall Elimination Provision (WEP)
Summary
The windfall elimination provision (WEP) reduces the Social Security benefits of workers who
also have pension benefits from employment not covered by Social Security. Its purpose is to
remove an advantage or “windfall” these workers would otherwise receive as a result of the
interaction between the Social Security benefit formula and the workers’ relatively short careers
in Social Security-covered employment. Opponents contend that the provision is basically
imprecise and can be unfair.
This report will be updated annually or upon legislative activity.
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Social Security: The Windfall Elimination Provision (WEP)
Contents
Background ................................................................................................................................ 1
Who is Affected by the WEP? ..................................................................................................... 3
Legislative History and Rationale................................................................................................ 5
Arguments for the Windfall Elimination Provision ................................................................ 6
Arguments Against the Windfall Elimination Provision ......................................................... 6
The WEP’s Impact on Low-Income Workers ......................................................................... 6
Tables
Table 1. Social Security Benefit Formula in 2011 ........................................................................ 1
Table 2. Monthly PIA for a Worker With Average Indexed Monthly Earnings of $1,500
and Retiring in 2011................................................................................................................. 2
Table 3. WEP Reduction Falls with Years of Substantial Coverage .............................................. 3
Table 4. Number of Beneficiaries in Current Payment Status with Benefits Affected by
Windfall Elimination Provision (WEP), by State and Type of Benefit, December 2010............ 4
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Social Security: The Windfall Elimination Provision (WEP)
Background
The Social Security benefit formula is designed so that workers with low average lifetime
earnings in Social Security-covered employment receive a benefit that is a larger proportion of
their earnings than do workers with high average lifetime earnings. The benefit formula does not
distinguish, however, between workers who have low average earnings because they worked for
many years at low wages in Social Security-covered employment and workers who have low
average earnings because they worked briefly in Social Security-covered employment. The
generous benefit that would be provided to workers who have split their careers between Social
Security-covered and non-covered employment is sometimes referred to as a “windfall” that
would exist in the absence of the windfall elimination provision (WEP). The WEP reduces the
Social Security benefits of workers who also have pension benefits from employment not covered
by Social Security.
A worker is eligible for Social Security after he or she works in Social Security-covered
employment for 10 or more years (40 or more quarters). The worker’s earning history is indexed
to wage growth to bring earlier years of his or her earnings up to a comparable, current basis.
Average indexed earnings are found by totaling the highest 35 years of indexed wages and then
dividing by 35. Next, a monthly average, known as Average Indexed Monthly Earnings (AIME),
is found by dividing the annual average by 12.
The Social Security benefit formula is designed to provide a progressive benefit. The benefit
formula applies three progressive factors—90%, 32%, and 15%—to three different levels, or
brackets, of AIME.1 The result is known as the “primary insurance amount” (PIA) and is rounded
down to the nearest 10 cents. For persons who reach age the age of 62, die, or become disabled in
2011, the PIA is determined in Table 1 as follows:
Table 1. Social Security Benefit Formula in 2011
Factor
Average Indexed Monthly Earnings
90%
of the first $749, plus
32%
of AIME over $749 and through $4,517 plus
15%
of AIME over $4,517
The averaging provision in the benefit formula tends to cause workers with short careers in Social
Security-covered employment to have low AIMEs, similar to persons who worked for low wages
in covered employment throughout their careers. This is because years of zero covered earnings
are entered as zeros into the formula that averages the worker’s wage history over 35 years. For
example, a person with 10 years in Social Security-covered employment would have an AIME
that reflects 25 years of zero earnings.
Consequently, for a worker with a low AIME because she split her career between covered and
non-covered employment, the benefit formula replaces more of covered earnings at the 90% rate
1 Both the annual earnings amounts over the worker’s lifetime and the bracket amounts are indexed to national wage
growth so that the Social Security benefit replaces the same proportion of wages for each generation.
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Social Security: The Windfall Elimination Provision (WEP)
than if this worker had spent his or her full 35-year career in covered employment at the same
wage level. The higher replacement rate2 for workers who have split their careers between Social
Security-covered and non-covered jobs is sometimes referred to as a “windfall.”3
A different Social Security benefit formula, referred to as the “windfall elimination provision,”
applies to many workers who are entitled to Social Security as well as to a pension from work not
covered by Social Security (e.g., individuals who work for certain state and local governments, or
under the Federal Civil Service Retirement System).4 Under these rules, the 90% factor in the
first bracket of the formula is replaced by a factor of 40%. The effect is to lower the proportion of
earnings in the first bracket that are converted to benefits. Table 2 illustrates how the regular and
WEP provisions work in 2011.
Table 2. Monthly PIA for a Worker With Average Indexed Monthly
Earnings of $1,500 and Retiring in 2011
Regular Formula
Windfall Elimination Formula
90% of first $749
$674.10 40% of first $749
$299.60
32% of earnings over $749 and
$240.30 32% of earnings over $749 and
$240.30
through $4,517
through $4,517
15% over $4,517
0.00 15% over $4,517
0.00
Total $914.40
Total $539.90
Under the WEP formula, the benefit for the worker is reduced by $374.50 ($914.40 - $539.90) per
month relative to the regular benefit formula. Note that the WEP reduction is limited to the first
bracket in the AIME formula (90% vs. 40% formula rates), while the 32% and 15% factors for
the second and third brackets are the same as in the regular benefit formula. As a result, for AIME
amounts that exceed the first threshold of $749, the amount of the WEP reduction remains a flat
$374.50 per month. For example, if the worker had an AIME of $2,000 instead of $1,500, the
WEP reduction would again be $374.50 per month.
A “guarantee” in the WEP provision ensures that a worker’s WEP reduction cannot exceed more
than one half of the government pension based on the worker’s non-covered work. This
“guarantee” is designed to help protect workers with low non-covered pensions and also ensures
that the WEP can never completely eliminate a worker’s Social Security benefit. The WEP also
exempts workers who have 30 or more years of “substantial” employment covered under Social
Security, with lesser reductions for workers with 21 through 29 years of substantial covered
employment, as shown in Table 3.5
2 A worker’s replacement rate is the ratio of his or her Social Security benefit to 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 Alison M. Shelton.
4 Social Security Act §215(a)(7). Federal service where Social Security taxes are withheld (Federal Employees’
Retirement System or CSRS Offset) is not affected by the WEP.
5 For 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
(continued...)
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Table 3. WEP Reduction Falls with Years of Substantial Coverage
Years of Social Security Coverage
20 21 22 23 24 25 26 27 28 29
30
First factor in
formula
40% 45% 50% 55% 60% 65% 70% 75% 80% 85%
90%
Maximum
dollar
amount of
monthly
$380.5 $342.5 $304.4 $266.4 $228.3 $190.3 $152.2 $114.2 $76.1 $38.1 $0
WEP
reduction in
2010a
Source: Social Security Administration, How the Windfall Elimination Provision Can Affect Your Social Security Benefit,
Washington, DC, http://www.socialsecurity.gov/retire2/wep-chart.htm.
a. WEP reduction may be lower than the amount shown because the reduction is limited to one-half of the
worker’s pension from non-covered employment.
The WEP does not apply to (1) an individual who on January 1, 1984, was an employee of a
government or nonprofit organization and to whom Social Security coverage was mandatorily
extended by the 1983 amendments to the Social Security Act (e.g., the President, Members of
Congress in office on December 31, 1983); (2) benefits for survivors; (3) workers who reached
the age of 62, became disabled, or were first eligible for a pension from non-covered
employment, before 1986; (4) benefits from foreign Social Security systems that are based on a
“totalization” agreement with the United States; and (5) people whose only non-covered
employment that resulted in a pension was in military service before 1957 or is based on railroad
employment.
Who is Affected by the WEP?
According to the Social Security Administration (SSA), as of December 2010, about 1.3 million
Social Security beneficiaries were affected by the WEP, as shown in Table 4. About 1.2 million
persons affected by the WEP were retired workers (about 3.4% of retired workers). Of retired
workers affected by the WEP, approximately 63% were men.6
(...continued)
enacted) Social Security maximum taxable wage base for each year in question. In 2011, the “old-law” taxable wage
base is equal to $79,200, therefore to earn credit for one year of “substantial” employment under the WEP a worker
would have to earn at least $19,800 in Social Security-covered employment.
6 Social Security Administration, Office of Research, Evaluation and Statistics, January 2010, unpublished table W01.
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Table 4. Number of Beneficiaries in Current Payment Status with
Benefits Affected by Windfall Elimination Provision (WEP),
by State and Type of Benefit, December 2010
Retired
Disabled
Spouses and
State Total
Workers
Workers
Children
Total
1,282,786
1,174,743
17,136
90,907
Alabama
16,228 14,549 331 1,348
Alaska 6,735
6,344
90
301
Arizona
23,694 21,873 299 1,522
Arkansas 9,342
8,577
213
552
California 167,438
154,652
2,009
10,777
Colorado
38,430 35,814 510 2,106
Connecticut 12,513
11,815
180
518
Delaware 2,943
2,739
44
160
District of Columbia
7,104
6,721
132
251
Florida
73,098 67,214 851 5,033
Georgia
36,913 34,485 480 1,948
Hawai 8,018
7,342
80
596
Idaho 5,625
5,153
75
397
Illinois
65,927 62,098
579 3,250
Indiana 12,850
11,829
235
786
Iowa 6,942
6,446
80
416
Kansas 7,466
6,949
103
414
Kentucky 16,600
15,279
328
993
Louisiana
25,322 22,764 565 1,993
Maine 11,739
10,984
156
599
Maryland
38,518 35,924 504 2,090
Massachusetts
45,128 42,572 658 1,898
Michigan
16,076 14,683 269 1,124
Minnesota 14,536
13,579
159
798
Mississippi 8,134
7,392
161
581
Missouri
27,099 25,478 394 1,227
Montana 4,731
4,343
67
321
Nebraska 4,556
4,254
43
259
Nevada 18,408
17,378
228
802
New Hampshire
5,810
5,395
122
293
New
Jersey
18,639 17,095 344 1,200
New Mexico
10,817
9,661
187
969
New
York
26,596 24,300 454 1,842
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Social Security: The Windfall Elimination Provision (WEP)
Retired
Disabled
Spouses and
State Total
Workers
Workers
Children
North
Carolina
23,222 21,517 331 1,374
North Dakota
2,140
1,974
18
148
Ohio 92,301
85,858
1,069
5,374
Oklahoma
15,114 13,695 309 1,110
Oregon 12,672
11,729
164
779
Pennsylvania
29,641 27,124 531 1,986
Rhode Island
4,086
3,807
79
200
South Carolina
14,457
13,272
222
963
South Dakota
3,275
3,060
37
178
Tennessee
16,183 14,806 239 1,138
Texas 110,408
101,641
1,435
7,332
Utah 10,897
9,806
136
955
Vermont 2,148
1,988
22
138
Virginia.
40,334 37,030 436 2,868
Washington
24,358 22,030 301 2,027
West Virginia
5,328
4,719
132
477
Wisconsin 10,077
9,371
121
585
Wyoming 2,023
1,874
29
120
Outlying areas and foreign countries
70,147
53,761
595
15,791
Source: Social Security Administration, Office of Research, Evaluation and Statistics, January 2010, unpublished
table B.
Legislative History and Rationale
The windfall elimination provision was enacted in 1983 as part of major amendments designed to
shore up the financing of the Social Security program. The 40% WEP formula factor was the
result of a compromise between a House bill that would have substituted a 61% factor for the
regular 90% factor and a Senate proposal that would have substituted a 32% factor for the 90%
formula.7
The purpose of the 1983 law was to remove an unintended advantage that the regular Social
Security benefit formula provided to persons 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
earnings than the benefit that is provided to workers with high earnings. However, the formula
could not differentiate between those who worked in low-paid jobs throughout their careers and
other workers who appeared to have been low paid because they worked many years in jobs not
7 Conference Report to Accompany H.R. 1900, 98th Cong., March 24, 1983 (Washington: GPO, 1983), p. 120.
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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. The windfall elimination formula is intended to remove this
advantage for these workers.
Arguments for the Windfall Elimination Provision
Proponents of the measure say that it is a reasonable means to prevent payment of overgenerous
and unintended benefits to certain workers who otherwise would profit from happenstance (i.e.,
the mechanics of the Social Security benefit formula). Furthermore, they maintain that the
provision rarely causes hardship because by and large the people affected are reasonably well off
because by definition they also receive government pensions from non-covered work. The
guarantee provision ensures that the reduction in Social Security benefits cannot exceed half of
the pension from non-covered work, which protects persons with small pensions from 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 persons who spend 30 years or more
in Social Security-covered work.
Arguments Against the Windfall Elimination Provision
Some opponents believe the provision is unfair because it substantially reduces a benefit that
workers may have included in their retirement plans. Others criticize how the provision works.
They say the arbitrary 40% factor in the windfall elimination formula is an imprecise way to
determine the actual windfall when applied to individual cases.
The WEP’s Impact on Low-Income Workers
The impact of the WEP on low-income workers has been the subject of debate. Jeffrey Brown
and Scott Weisbenner (hereinafter referred to as “Brown and Weisbenner”) point out two reasons
why the WEP can be regressive. 8 First, because the WEP adjustment is confined to the first
bracket of the benefit formula ($749 in 2011), it causes a proportionally larger reduction in
benefits for workers with lower AIMEs and benefit amounts.9 Second, a high earner is more
likely than a low earner to cross the “substantial work” threshold for accumulating years of
covered earnings (in 2011 this threshold is $19,800 of Social Security-covered earnings);
therefore, high earners are more likely to benefit from the provision that phases out of the WEP
for persons with between 21 and 30 years of covered employment.
Brown and Weisbenner found that the WEP does reduce benefits disproportionately for lower-
earning households than for higher-earning households. For some high-income households,
applying the WEP to covered earnings even provides a higher replacement rate than if the WEP
8 Jeffrey R. Brown and Scott Weisbenner, The Distributional Effects of the Social Security Windfall Elimination
Provision, NBER and the Social Security Administration, September 5, 2008, pp 8-13, http://www.nber.org/programs/
ag/rrc/books&papers.html.
9 For example, a worker with an AIME of $4,000 would be entitled to a PIA of $1,714.40 before a WEP reduction of
$374.50 per month, which would represent a reduction of 22% in this worker’s benefit. By contrast, the worker shown
in Table 2 with an AIME of $1,500 would be entitled to a benefit of $914.40 before the WEP reduction of $374.50,
representing a cut of 41% to this worker’s benefit (CRS calculations).
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were applied proportionately to all earnings, covered and non-covered. Brown and Weisbenner
also 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 a modification in the WEP formula.
SSA estimated that in 2000, 3.5% of recipients affected by the WEP had incomes below the
poverty line. For comparison purposes, at that time 8.5% of all Social Security beneficiaries aged
65 and older had incomes below the poverty line and 11.3% of the general population had
incomes below the poverty line.10 A potential conclusion is that persons who are subject to the
WEP, who by definition also have pensions from non-covered employment, face a somewhat
reduced risk of poverty compared with other Social Security beneficiaries.
10 These are the most recent estimates available. Poverty rates were calculated by David Weaver of the Social Security
Administration’s Office of Retirement Policy using the March 2001 Current Population Survey (CPS). Poverty status is
taken directly from the CPS and is thus subject to errors in the reporting of income. The sample size for the WEP
poverty rate is relatively small (230 cases) and only includes persons for whom SSA administrative records could be
matched.
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