Social Security: The Windfall Elimination Provision (WEP)

The windfall elimination provision (WEP) is a modified benefit formula that reduces the Social Security benefits of certain retired or disabled workers who are also entitled to pension benefits based on earnings from jobs that were not covered by Social Security and thus not subject to the Social Security payroll tax. Its purpose is to remove an unintended advantage or “windfall” that these workers would otherwise receive as a result of the interaction between the regular Social Security benefit formula and the workers’ relatively short careers in Social Security-covered employment. In December 2017, more than 1.8 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP.

Social Security: The Windfall Elimination Provision (WEP)

July 2, 2018 (98-35)
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Summary

The windfall elimination provision (WEP) is a modified benefit formula that reduces the Social Security benefits of certain retired or disabled workers who are also entitled to pension benefits based on earnings from jobs that were not covered by Social Security and thus not subject to the Social Security payroll tax. Its purpose is to remove an unintended advantage or "windfall" that these workers would otherwise receive as a result of the interaction between the regular Social Security benefit formula and the workers' relatively short careers in Social Security-covered employment. In December 2017, more than 1.8 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP.


Social Security: The Windfall Elimination Provision (WEP)

Introduction

Social Security provides insured workers and their eligible family members with a measure of protection against the loss of income due to the worker's retirement, disability, or death. The amount of the monthly benefit payable to workers and their family members is based on the worker's career-average earnings from jobs covered by Social Security (i.e., jobs in which the worker's earnings were subject to the Social Security payroll tax).1 The Social Security benefit formula is weighted to replace a greater share of career-average earnings for low-paid workers than for high-paid workers. This means that low-paid workers receive relatively high benefits in relation to their payroll tax contributions, although the dollar amount of their benefits is lower than that provided to high-paid workers.

The benefit formula, however, cannot distinguish between workers who have low career-average earnings because they worked for many years at low earnings in Social Security-covered employment and workers who appear to have low career-average earnings because they worked for many years in jobs not covered by Social Security. (Those years show up as zeros in their Social Security earnings records, which, when averaged, lower their career earnings from covered work.) Consequently, workers who split their careers between covered and noncovered employment—even highly paid ones—may also receive the advantage of the weighted formula.

The windfall elimination provision (WEP) is a modified benefit formula designed to remove the unintended advantage, or "windfall," of the regular benefit formula for certain retired or disabled workers who spent less than full careers in covered employment and who are also entitled to pension benefits based on earnings from jobs not covered by Social Security. The reduction in initial benefits caused by the WEP is designed to place affected workers in approximately the same position they would have been in had all their earnings been covered by Social Security.

Background on the Social Security Benefit Formula

Workers qualify for Social Security benefits if they worked and paid Social Security payroll taxes for a sufficient amount of time in covered employment.2 Retired workers need at least 40 quarters of coverage (or about 10 years of covered work), whereas disabled workers generally need fewer quarters of coverage.3 Initial benefits are based on a worker's career-average earnings from jobs covered by Social Security. In computing the initial benefit amount, a worker's annual taxable earnings are indexed (i.e., adjusted) to average earnings growth in the national economy.4 This is done to bring earlier years of earnings up to a comparable, current basis. Next, a summarized measure of a worker's career-average earnings is found by totaling the highest 35 years of covered earnings and then dividing by 35.5 After that, a monthly average, known as average indexed monthly earnings (AIME), is found by dividing the annual average by 12.

Once the worker's AIME has been derived, it is then entered into the Social Security benefit formula to produce the worker's initial benefit amount. The benefit formula is progressive, replacing a greater share of career-average earnings for low-paid workers than for high-paid workers. The benefit formula applies three factors—90%, 32%, and 15%—to three different levels, or brackets, of AIME. 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.6 The benefit formula applicable to a given worker is based on the individual's earliest eligibility year (ELY), that is, the year in which the worker first attains aged 62, becomes disabled, or dies.7 For workers whose ELY is 2018, the PIA is determined as follows in Table 1.

Table 1. Social Security Benefit Formula for Workers Who First Become Eligible
in 2018

Factor

Average Indexed Monthly Earnings (AIME)

90%

of the first $895, plus

32%

of AIME over $895 and through $5,397 (if any), plus

15%

of AIME over $5,397 (if any)

Source: CRS, based on Social Security Administration (SSA), Office of the Chief Actuary (OCACT), "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, even if they had high earnings in their noncovered career, similar to people who worked for low earnings 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 earnings 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, even if that person worked for 25 years in a high-paying, noncovered career.

Consequently, for a worker whose AIME is low because his or her career was split between covered and noncovered employment, the benefit formula replaces more of covered earnings at the 90% rate than if the worker had spent a full 35-year career in covered employment at the same earnings level. The higher replacement rate8 for workers who have split their careers between Social Security-covered and noncovered jobs is sometimes referred to as a "windfall."9

How the Windfall Elimination Provision Works

A different Social Security benefit formula, known informally as the windfall elimination provision, applies to certain workers who are entitled to Social Security benefits as well as to pension benefits from employment not covered by Social Security.10 Under the WEP, 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 2018 for someone with a 40% factor.

Table 2. PIA for a Worker with AIME of $1,500 Who Becomes Eligible in 2018 and Has 20 Years of Substantial Coverage

Regular Formula

WEP Formula

90% of first $895

$805.50

40% of first $895

$358.00

32% of earnings over $895
and through $5,397

193.60

32% of earnings over $895
and through $5,397

193.60

15% over $5,397

0.00

15% over $5,397

0.00

Total

$999.10

Total

$551.60

Source: CRS.

Note: PIA = Primary Insurance Amount. AIME = Average Indexed Monthly Earnings. To simplify the example, rounding conventions that would normally apply are not used here.

In this scenario, the monthly benefit is $447.50 lower under the WEP than under the regular benefit formula ($999.10 minus $551.60). 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 $895, the WEP reduction remains a flat $447.50 per month. For example, if the worker had an AIME of $4,000 instead of $1,500, the WEP reduction would still be $447.50 per month. The WEP therefore causes a proportionally larger reduction in benefits for workers with lower AIMEs and monthly benefit amounts.11

A guarantee in the WEP ensures that the WEP reduction cannot exceed half of the noncovered pension based on the worker's noncovered work. This guarantee is designed to help protect workers with low pensions from noncovered work. 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 3.12

Table 3. Maximum WEP Reduction for Workers Who Become Eligible in 2018, by Years of Substantial Coverage

 

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 for workers who first become eligible for Social Security in 2018:a

 

$447.50

$402.75

$358.00

$313.25

$268.50

$223.75

$179.00

$134.25

$89.50

$44.75

$0.00

Source: CRS.

Notes: The WEP reduction may be lower than the amount shown because the reduction is limited to one-half of the worker's pension from noncovered employment. In addition, because the WEP reduces the initial benefit amount before it is reduced or increased due to early retirement, delayed retirement credits (DRCs), cost-of-living adjustments (COLAs), or other factors, the difference between the final benefit with the WEP and the final benefit without the WEP may be less than or greater than the amounts shown.

a. The maximum dollar amount of the monthly WEP is based on a worker's ELY. Because the dollar amounts defining the brackets in the benefit formula change each year, the maximum dollar amount of the WEP reduction for a worker with an ELY of 2018 is different from the maximum deduction for a worker with an ELY of any other year. For maximum WEP reduction amounts for workers with ELYs prior to 2018, see SSA, "Windfall Elimination Provision (WEP) Chart," https://www.ssa.gov/planners/retire/wep-chart.html.

The WEP applies to benefits payable to retired or disabled workers who meet the criteria above and to their eligible dependents; however, it does not apply to benefits payable to survivors of deceased insured workers. Groups of workers likely to be affected by the WEP include certain state and local government employees who are covered by alternative pension plans through their employers13 and most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS).14 The WEP does not apply to

  • federal employees performing service on January 1, 1984, to which coverage was extended on that date by reason of the Social Security Amendments of 1983 (P.L. 98-21);
  • employees of a nonprofit organization who were exempt from Social Security coverage on December 31, 1983, and who became covered for the first time on January 1, 1984, under P.L. 98-21;
  • workers who attained age 62, became disabled, or were first eligible for a pension from noncovered employment before 1986;
  • workers who receive foreign pension payments after 1994 that are based on a totalization agreement with the United States;15
  • workers whose only noncovered pension is based on earnings from noncovered domestic or foreign employment before 1957;16 and
  • railroad workers whose only noncovered pension is based on earnings from employment covered by the Railroad Retirement Act.17

The Number of People Who Are Affected by the WEP

According to the Social Security Administration (SSA), as of December 2017, more than 1.8 million Social Security beneficiaries were affected by the WEP (Table 4). The overwhelming majority of those affected (about 94%) were retired workers. Approximately 3% of all Social Security beneficiaries (including disabled workers and dependent beneficiaries) and 4% of all retired-worker beneficiaries were affected by the WEP in December 2017.18 Of retired workers affected by the WEP, approximately 58% were men (Table 5).

Table 4. Number of Social Security Beneficiaries in Current Payment Status with Benefits Affected by WEP, by Type, December 2014-December 2017

Year

Total

Retired Worker

Disabled Worker

Spouses and Children

2014

1,623,795

1,506,792

16,613

100,390

2015

1,692,609

1,574,787

15,823

101,999

2016

1,747,361

1,629,825

14,896

102,640

2017

1,804,095

1,687,542

13,981

102,572

Source: CRS, based on unpublished data from Social Security Administration (SSA), Office of Research, Evaluation, and Statistics (ORES), Table B, select years.

Table 5. Number of Social Security Worker Beneficiaries in Current Payment Status with Benefits Affected by WEP, by Gender and Type, December 2017

Gender

All Workers

Retired Workers

Disabled Workers

All Beneficiaries

1,701,523

1,687,542

13,981

Women

710,094

703,775

6,319

Men

991,429

983,767

7,662

Source: CRS, based on unpublished data from SSA, ORES, Table W01, June 2018.

For data on the number and share of Social Security beneficiaries affected by the WEP, by state, see Table A-1 and Table A-2 in the Appendix, respectively.

Legislative History and Rationale

The WEP was enacted in 1983 as part of major amendments (P.L. 98-21) 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.19

The purpose of the 1983 provision was to remove an unintended advantage that the regular Social Security benefit formula provided to certain retired or disabled worker-beneficiaries who were also entitled to pension benefits based on earnings from jobs not subject to the Social Security payroll tax. 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 career-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, because their few years of covered earnings were averaged over their entire working career to determine the average covered earnings on which their Social Security benefits were based. The WEP is intended to place affected workers in approximately the same position they would have been in had all their earnings been covered by Social Security.

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 pensions from noncovered work. The guarantee provision ensures that the reduction in Social Security benefits cannot exceed half of the pension from noncovered work, which protects people with small pensions from noncovered work. In addition, the impact of the WEP is reduced for workers who spend 21 to 29 years in Social Security-covered work and is eliminated for 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.20

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 "Brown and Weisbenner") point out two reasons why the WEP can be regressive.21 First, because the WEP adjustment is confined to the first bracket of the benefit formula ($895 in 2018), 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 2018 this threshold is $23,850 in Social Security-covered earnings); therefore, high earners are more likely to benefit from the provision that phases out 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 noncovered. 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.22 This comparison implies that people who are subject to the WEP, who by definition also have pensions from noncovered employment, face a somewhat reduced risk of poverty compared with other Social Security beneficiaries.

Legislative Activity on the WEP in the 115th Congress

H.R. 1205 and S. 915, identical bills both titled the Social Security Fairness Act of 2017, were introduced by Representative Rodney Davis on February 21, 2017, and Senator Sherrod Brown on April 24, 2017, 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.23 The elimination of the WEP and GPO would apply to benefits payable for months after December 2017.

In 2016, SSA's Office of the Chief Actuary (OCACT) projected that repealing both the WEP and the GPO would reduce the long-range actuarial balance (i.e., increase the net long-term cost) of the combined Social Security trust funds by 0.13% of taxable payroll.24 OCACT estimated that repealing only the WEP would reduce the long-range actuarial balance of the combined trust funds by 0.08% of taxable payroll.25

Appendix. WEP Affected Beneficiaries, by State

Table A-1. Number of Social Security Beneficiaries in Current Payment Status with
Benefits Affected by WEP, by State and Type of Beneficiary, December 2017

State

Total

Type of Beneficiary

 

 

Retired
Workers

Disabled Workers

Spouses and Children

Total

1,804,095

1,687,542

13,981

102,572

Alabama

18,771

17,463

224

1,084

Alaska

10,862

10,334

74

454

Arizona

34,000

31,945

240

1,815

Arkansas

10,570

10,012

136

422

California

249,198

234,081

1,784

13,333

Colorado

59,621

56,533

734

2,354

Connecticut

18,875

18,089

123

663

Delaware

4,152

3,962

31

159

District of Columbia

7,711

7,435

71

205

Florida

99,892

93,602

659

5,631

Georgia

52,543

50,108

440

1,995

Hawaii

10,812

10,042

41

729

Idaho

7,852

7,344

72

436

Illinois

93,718

89,644

451

3,623

Indiana

16,785

15,849

156

780

Iowa

8,300

7,894

52

354

Kansas

9,340

8,840

86

414

Kentucky

23,693

22,523

216

954

Louisiana

42,328

39,500

636

2,192

Maine

17,642

16,880

96

666

Maryland

47,577

45,152

321

2,104

Massachusetts

72,856

69,776

597

2,483

Michigan

21,539

20,127

208

1,204

Minnesota

16,874

16,060

104

710

Mississippi

9,761

9,150

120

491

Missouri

38,192

36,731

271

1,190

Montana

6,249

5,891

29

329

Nebraska

5,471

5,207

42

222

Nevada

30,918

29,640

222

1,056

New Hampshire

8,043

7,626

84

333

New Jersey

22,916

21,347

236

1,333

New Mexico

13,462

12,463

142

857

New York

32,532

30,162

296

2,074

North Carolina

30,227

28,731

198

1,298

North Dakota

2,342

2,223

13

106

Ohio

138,005

131,219

1,333

5,453

Oklahoma

17,503

16,414

176

913

Oregon

17,424

16,371

102

951

Pennsylvania

36,607

34,298

359

1,950

Rhode Island

5,618

5,376

49

193

South Carolina

18,711

17,700

142

869

South Dakota

3,977

3,807

23

147

Tennessee

20,787

19,592

162

1,033

Texas

172,981

163,210

1,215

8,556

Utah

13,818

12,756

101

961

Vermont

2,653

2,491

12

150

Virginia

49,212

46,137

238

2,837

Washington

32,811

30,409

220

2,182

West Virginia

6,306

5,820

80

406

Wisconsin

12,421

11,771

68

582

Wyoming

2,482

2,354

13

115

Outlying Areas and Foreign Countries

97,155

75,451

483

21,221

Source: CRS, based on unpublished data from SSA, ORES, Table B, June 2018.

Table A-2. Percentage of Social Security Beneficiaries in Current Payment Status Affected by the WEP, by State and Type of Beneficiary, December 2017

State

All Beneficiaries

Type of Beneficiary

 

 

Retired
Workers

Disabled Workers

Spouses and Children

Total

2.9%

4.0%

0.2%

2.2%

Alabama

1.7%

2.5%

0.1%

1.2%

Alaska

11.0%

15.1%

0.6%

6.0%

Arizona

2.6%

3.4%

0.2%

2.0%

Arkansas

1.5%

2.3%

0.1%

0.8%

California

4.3%

5.6%

0.3%

2.7%

Colorado

7.0%

9.2%

0.7%

3.8%

Connecticut

2.8%

3.7%

0.2%

1.5%

Delaware

2.0%

2.6%

0.1%

1.3%

District of Columbia

9.4%

13.3%

0.5%

4.5%

Florida

2.2%

2.8%

0.1%

1.8%

Georgia

2.9%

4.2%

0.2%

1.6%

Hawaii

4.1%

4.9%

0.2%

4.2%

Idaho

2.3%

3.1%

0.2%

1.7%

Illinois

4.2%

5.8%

0.2%

2.2%

Indiana

1.3%

1.8%

0.1%

0.8%

Iowa

1.3%

1.7%

0.1%

0.9%

Kansas

1.7%

2.3%

0.1%

1.1%

Kentucky

2.4%

3.9%

0.1%

1.1%

Louisiana

4.7%

7.5%

0.4%

2.5%

Maine

5.2%

7.4%

0.2%

2.6%

Maryland

4.8%

6.4%

0.2%

3.3%

Massachusetts

5.8%

8.1%

0.3%

2.5%

Michigan

1.0%

1.4%

0.1%

0.7%

Minnesota

1.7%

2.2%

0.1%

1.0%

Mississippi

1.5%

2.3%

0.1%

0.9%

Missouri

3.0%

4.3%

0.1%

1.4%

Montana

2.7%

3.6%

0.1%

2.2%

Nebraska

1.6%

2.1%

0.1%

1.0%

Nevada

5.9%

7.8%

0.3%

3.3%

New Hampshire

2.7%

3.7%

0.2%

1.4%

New Jersey

1.4%

1.8%

0.1%

1.1%

New Mexico

3.1%

4.3%

0.2%

2.5%

New York

0.9%

1.2%

0.1%

0.7%

North Carolina

1.5%

2.0%

0.1%

1.0%

North Dakota

1.8%

2.4%

0.1%

1.2%

Ohio

5.9%

8.5%

0.4%

3.1%

Oklahoma

2.2%

3.2%

0.1%

1.6%

Oregon

2.0%

2.6%

0.1%

1.7%

Pennsylvania

1.3%

1.8%

0.1%

1.0%

Rhode Island

2.5%

3.5%

0.1%

1.3%

South Carolina

1.7%

2.3%

0.1%

1.2%

South Dakota

2.3%

3.0%

0.1%

1.4%

Tennessee

1.5%

2.1%

0.1%

1.0%

Texas

4.2%

6.0%

0.2%

2.3%

Utah

3.5%

4.7%

0.2%

2.7%

Vermont

1.8%

2.4%

0.1%

1.4%

Virginia

3.3%

4.4%

0.1%

2.6%

Washington

2.5%

3.2%

0.1%

2.2%

West Virginia

1.3%

2.1%

0.1%

0.9%

Wisconsin

1.0%

1.4%

0.0%

0.7%

Wyoming

2.3%

3.0%

0.1%

1.7%

Outlying Areas and Foreign Countries

6.4%

8.4%

0.3%

8.9%

Source: CRS analysis of data from the following sources: SSA, ORES, Table B, June 2018 (unpublished); and SSA, ORES, Annual Statistical Supplement, 2018 (in progress), Table 5.J2, https://www.ssa.gov/policy/docs/statcomps/supplement/2018/.

Notes: The column "All Beneficiaries" includes survivor beneficiaries who are not subject to the WEP. The row "Outlying Areas and Foreign Countries" includes a small number of Social Security beneficiaries whose state or area is unknown.

Author Contact Information

[author name scrubbed], Analyst in Income Security ([email address scrubbed], [phone number scrubbed])

Acknowledgments

This report was authored by multiple former CRS analysts. CRS would like to thank SSA's Office of Research, Evaluation, and Statistics for providing CRS with unpublished data on beneficiaries affected by the WEP.

Footnotes

1.

For the purposes of this report, the term payroll tax includes the Social Security self-employment tax.

2.

Unless otherwise noted, the term covered employment includes self-employment covered by Social Security.

3.

See Social Security Administration (SSA), How You Earn Credits, Publication No. 05-10072, January 2018, https://www.ssa.gov/pubs/EN-05-10072.pdf.

4.

Years of earnings are indexed up to the second calendar year before the year of earliest eligibility (i.e., the year in which the worker first attains aged 62, becomes disabled, or dies). Years of earnings after the last indexing year are counted in nominal (i.e., unadjusted) dollars.

5.

The number of benefit computation years for disabled or deceased workers may be fewer than 35 years.

6.

The worker's primary insurance amount (PIA) is subsequently adjusted to account for inflation through cost-of-living adjustments (COLAs). Additional adjustments may be made to the PIA to account for early retirement, delayed retirement, or certain other factors.

7.

Although the factors in the formula are fixed in law, the dollar amounts defining the brackets, also known as bend points, are adjusted annually for average earnings growth in the national economy. Because the bend points change each year, the benefit formula for a worker with an earliest eligibility year (ELY) in 2018 is different from the benefit formula for a worker with an ELY in any other year. For bend point amount for years prior to 2018, see SSA, Office of the Chief Actuary (OCACT), "Benefit Formula Bend Points," https://www.ssa.gov/oact/cola/bendpoints.html.

8.

The replacement rate is the ratio of the program benefit to a worker's prior earnings.

9.

The windfall elimination provision (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. See CRS Report RL32453, Social Security: The Government Pension Offset (GPO).

10.

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. Moreover, see SSA, Program Operations Manual System, "RS 00605.360 WEP Applicability," June 24, 2013, http://policy.ssa.gov/poms.nsf/lnx/0300605360. The term "windfall elimination provision" is not specified in statute or in SSA's regulations.

11.

For the worker shown in Table 2, with an AIME of $1,500 and a monthly benefit of $999.10 under the regular benefit formula in 2018, the WEP reduction of $447.50 represents a cut of approximately 45% to the regular formula monthly benefit amount. By comparison, a worker with an AIME of $4,000 would be entitled to a PIA of $1,799.10 under the 2018 regular benefit formula, and the same WEP reduction of $447.50 per month would represent a 25% reduction in this worker's monthly benefit amount.

12.

For determining years of coverage after 1978 for individuals with pensions from noncovered employment, "substantial coverage" is defined as 25% of the "old law" Social Security maximum taxable earnings base for each year in question. The old law maximum taxable earnings base refers to the earnings base that would have been in effect had the Social Security Amendments of 1977 (P.L. 95-216) not been enacted. In 2018, the old-law taxable earnings base is equal to $95,400; therefore, to earn credit for one year of substantial employment under the WEP, a worker would have to earn at least $23,850 in Social Security-covered employment. For the thresholds for previous years, see SSA, OCACT, "Old-Law Base and Year of Coverage," https://www.ssa.gov/oact/cola/yoc.html.

13.

See Department of the Treasury, Internal Revenue Service (IRS), Federal-State Reference Guide, IRS Publication 963 (Rev. 11-2014), https://www.irs.gov/pub/irs-pdf/p963.pdf.

14.

See CRS Report 98-810, Federal Employees' Retirement System: Benefits and Financing.

15.

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 United States and a foreign country.

16.

The WEP does not apply in cases where the pension is based, in part, on noncovered military reserve duty before 1988 but after 1956.

17.

SSA, POMS, "RS 00605.362 Windfall Elimination Provision (WEP) Exceptions," November 9, 2017, https://secure.ssa.gov/poms.nsf/lnx/0300605362.

18.

Data on the total Social Security beneficiary and retired-worker populations used in these calculations are from SSA, OCACT, "Benefits Paid By Type Of Beneficiary," https://www.ssa.gov/oact/ProgData/icp.html.

19.

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.

20.

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.

21.

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, http://business.illinois.edu/weisbenn/RESEARCH/PAPERS/JPEF_Brown_Weisbenner.pdf.

22.

These are the most recent estimates available. Poverty rates were calculated by David Weaver, formerly of SSA'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.

23.

See CRS Report RL32453, Social Security: The Government Pension Offset (GPO). See also CRS In Focus IF10203, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

24.

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 was based on the intermediate assumptions of the 2015 Social Security trustees report. Taxable payroll is the total amount of earnings in the economy that is subject to Social Security payroll and self-employment taxes (with some adjustments).

25.

Informal cost estimate provided to CRS by OCACT on June 14, 2018. OCACT estimated that repealing only the GPO would reduce the long-range actuarial balance of the combined trust funds by 0.06% of taxable payroll.