link to page 1 link to page 1 link to page 1 
Updated November 9, 2021
The Windfall Elimination Provision (WEP) in Social Security:
Proposals for a New Proportional Formula
Background
The Proportional Formula
Social Security is a work-based federal insurance program
Shortly before the WEP was enacted in 1983 (P.L. 98-21),
that provides monthly cash benefits to workers and their
the bipartisan National Commission on Social Security
eligible family members in the event of a worker’s
Reform (the Greenspan Commission) described two
retirement, disability, or death. Although participation in
different methods of eliminating the windfall benefits: (1)
Social Security is compulsory for most workers, about 6%
the current-law method of adjusting the first replacement
of workers in paid employment or self-employment are not
factor (90%) as discussed above; and (2) a proportional
covered by Social Security (i.e., earnings are not taxable or
formula. The proportional formula for WEP purposes
creditable for program purposes).
would apply the regular Social Security benefit formula to
all past earnings from both covered and noncovered
The regular Social Security benefit formula is progressive,
employment. The resulting benefit would then be multiplied
replacing a greater share of career-average earnings for
by the ratio of career-average earnings (AIME) from
low-paid workers than for high-paid workers. Career-
covered employment only to career-average earnings
average earnings in Social Security are calculated as
(AIME) from both covered and noncovered employment.
average indexed monthly earnings (AIME), which is the
monthly average of the highest 35 years of covered
The proportional formula better reflects the Greenspan
earnings after indexing for wage growth. If a person has
Commission’s recommendation for people with some
earnings not covered by Social Security, those noncovered
earnings from noncovered employment to receive the same
earnings are shown as zeros in their Social Security
replacement rate as those workers who spent their entire
earnings records. As a result, the regular formula cannot
careers in covered employment (see Table 1, column [3]),
distinguish workers who have low career-average earnings
whereas the current-law WEP can only approximately
because they worked for many years at low earnings in
achieve that goal (see Table 1, column [2]). However, in
covered employment from workers who appear to have low
1983, the Social Security Administration (SSA) lacked the
career-average earnings because they worked for many
data on noncovered earnings needed to make the benefit
years in jobs not covered by Social Security. Therefore,
adjustment under the proportional formula, so Congress
based on the regular formula, a worker who worked in both
adopted the current WEP formula instead. As of 2017, SSA
covered and noncovered employment might receive a
has 35 years of data on earnings from both covered and
higher replacement rate of career-average earnings than a
noncovered employment. This data’s availability means
worker with the same earnings who spent an entire career in
that the proportional formula is now an option for Congress
covered employment (see Table 1, column [1]). The
to consider.
windfall elimination provision (WEP) is designed to
remove such an unintended advantage, or windfall, for
Table 1. Illustrative Examples: Replacement Rates
certain beneficiaries with earnings not covered by Social
(Benefits as a Share of AIME) Under Alternative
Security.
Formulas
The Current WEP Formula
Regular
Curre
Propor-
The regular Social Security benefit formula applies three
Formula
nt-law
tional
factors—90%, 32%, and 15%—to three different brackets
(w/o WEP)
WEP
Formula
of a worker’s AIME. The result is the primary insurance
Employment
(1)
(2)
(3)
amount (PIA), which is the worker’s basic monthly benefit
Covered: 35 years;
at the full retirement age before any adjustments. Under
47%
47%
47%
Noncovered: 0 years
current law, the WEP reduction is based on years of
coverage (YOCs). The amount of substantial covered
Covered: 15 years;
68%
37%
47%
earnings needed for a YOC is $26,550 in 2021. For people
Noncovered: 20 years
with 20 or fewer YOCs, the WEP reduces the first factor
Source: Congressional Research Service.
from 90% to 40%. For each year of substantial covered
Notes: The worker is assumed to earn $45,000 (indexed by average
earnings in excess of 20, the first factor increases by 5%.
wage growth) per year and becomes eligible for benefits in 2021.
The WEP factor reaches 90% for those with 30 or more
YOCs, and at that point it is phased out. In addition, the
Comparing the Current WEP and the
WEP reduction cannot exceed one-half of the pension
Proportional Formula
benefit based on the worker’s noncovered employment, and
If the proportional formula had applied to current
it does not apply to those who do not receive such a
beneficiaries in 2018, SSA’s Office of the Chief Actuary
pension.
https://crsreports.congress.gov
The Windfall Elimination Provision (WEP) in Social Security: Proposals for a New Proportional Formula
(OCACT) estimates that about 1.1 million beneficiaries
Additional Monthly Payments to Current
affected by the current WEP (or 69%) would have received
Beneficiaries
a higher benefit and about 0.5 million (or 31%) would have
As discussed earlier, the proportional formula could provide
received a lower benefit. In addition, 13.5 million
a higher benefit to certain beneficiaries compared to current
beneficiaries with some noncovered earnings who were not
law, so both bills would provide additional monthly
affected by the current WEP would have received a lower
payments to current WEP-affected beneficiaries who are
benefit. Therefore, if the proportional formula were applied
first eligible for benefits before 2023. H.R. 2337 would
to new beneficiaries, it would generate program savings.
provide worker beneficiaries (but not dependents) an
additional monthly payment equal to the lesser of $150 or
Below are two examples in which beneficiaries affected by
the current WEP reduction amount. H.R. 5834 would
the current WEP would receive lower benefits under the
provide an additional monthly payment of $100 to workers
proportional formula:
and $50 to dependents. The additional monthly payments
would begin nine months after enactment of the respective
Beneficiaries with YOCs near 30. Certain beneficiaries
bill, would increase with cost-of-living adjustments, and
with YOCs near 30 would have a relatively high
would be exempt from most benefit adjustments under
replacement factor (e.g., 85% for 29 YOCs) under
Social Security. The additional monthly payment under
current law. Therefore, those beneficiaries’ benefit
H.R. 2337 would be excluded in determining eligibility and
reduction under the current WEP might be smaller than
the benefit amount under the Supplemental Security Income
under the proportional formula.
program.
Cost Estimates and Funding Rules
Beneficiaries with relatively high career-average
The OCACT estimates that H.R. 2337 would cost about
earnings. Since the current WEP reduction is limited to
$29.0 billion from 2021 through 2030, net of additional
the first bracket in the PIA formula, it might under-
revenue from income taxation, including $1.4 billion for the
adjust the benefit for some high earners with
new proportional formula and $27.5 billion for the
noncovered employment, resulting in a smaller benefit
additional monthly payments. Over the 75-year projection
reduction under current law than under the proportional
period, the present value of the overall net cost would be
formula.
about $98.3 billion. The bill would provide transfers from
the General Fund of the Treasury to the Social Security
Current beneficiaries who had noncovered earnings and are
trust funds in amounts needed to fully offset the bill’s costs,
exempt from the current-law WEP but would receive a
so it would have no effect on Social Security’s long-term
lower benefit using the proportional formula might include
financial outlook.
(1) beneficiaries with 30 or more years of substantial
covered earning; (2) beneficiaries who do not receive a
The OCACT estimates that H.R. 5834 would cost about
pension based on noncovered work; and (3) beneficiaries
$26.3 billion from 2022 through 2031, net of additional
who fit both categories.
revenue from income taxation, including $1.8 billion for the
new proportional formula and $24.5 billion for the
Legislation in 117th Congress
additional monthly payments. Over the 75-year projection
Two bills introduced in 2021 would replace the current-law
period, future savings from the proportional formula would
WEP approach with a proportional formula for certain
offset the cost of the additional monthly payments and the
individuals who would become eligible for Social Security
protection provision during the transitional period, so the
benefits in 2023 or later: (1) H.R. 2337 (the Public Servants
bill would have no significant effect on Social Security’s
Protection and Fairness Act), introduced by Representative
long-term financial outlook.
Richard E. Neal; and (2) H.R. 5834 (the Equal Treatment of
Other Provisions
Public Servants Act), introduced by Representative Kevin
Brady.
The annual Social Security statements that SSA makes
available to all eligible workers provide benefit estimates
No Benefit Cuts Relative to Current Law
based only on covered employment, with no estimates of
Because the proportional formula could reduce Social
the WEP adjustment. Because of this limitation,
Security benefits for some future beneficiaries with
beneficiaries have argued that they were not given
noncovered employment compared to current law, both
sufficient notice of how much their benefits would be
bills provide a protection provision, wherein individuals
reduced by the WEP. To address this issue, both bills would
would receive a benefit based on the higher of the current
require SSA to show noncovered as well as covered
WEP formula or the proportional formula. H.R. 2337 would
earnings records on the statements. Moreover, H.R. 2337
apply the protection provision to all future beneficiaries,
would require the statements to include projected benefits
and as with current law, the proportional formula would not
using the proportional formula for those workers who
apply to workers who do not receive a noncovered pension
would likely be subject to the WEP.
or who have 30 or more years of substantial covered
In addition, both bills would require studies on ways to
earnings. In contrast, H.R. 5834 would apply the protection
facilitate data exchanges between SSA and state and local
provision during the transitional period for new
governments for purposes of improving WEP
beneficiaries who become eligible for benefits during 2023
administration.
through 2061. For those who become eligible in 2062 and
later, benefits would be based solely on the proportional
Zhe Li, Analyst in Social Policy
formula.
IF11355
https://crsreports.congress.gov
The Windfall Elimination Provision (WEP) in Social Security: Proposals for a New Proportional Formula
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11355 · VERSION 2 · UPDATED