Social Security: The Windfall Elimination Provision (WEP)

Social Security is a work-based, federal insurance program that provides income support to workers and their eligible family members in the event of the worker’s retirement, disability, or death. A worker’s employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are taxable and creditable for program purposes. Although participation in Social Security is compulsory for most workers, about 6% of all workers in paid employment or self-employment are not covered by Social Security in 2019.

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 2019, about 1.9 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP. Those workers mainly include state and local government employees covered by alternative staff-retirement systems as well as most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS).

WEP’s supporters argue that the formula is a reasonable means to prevent overgenerous payments and unintended benefits to people who have earnings not covered by Social Security and receive pensions from noncovered work. Opponents argue that the provision substantially reduces a benefit that workers may have included in their retirement plans, and it reduces benefits disproportionately for lower-earning households. Others criticize the current WEP formula as an imprecise way to determine the actual windfall when applied to individual cases.

Recent legislation has generally proposed either to eliminate the provision for all or some affected beneficiaries, or replace the current-law provision with a new proportional formula based on past earnings from both covered and noncovered employment.

Social Security: The Windfall Elimination Provision (WEP)

Updated February 10, 2020 (98-35)
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Summary

Social Security is a work-based, federal insurance program that provides income support to workers and their eligible family members in the event of the worker's retirement, disability, or death. A worker's employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are taxable and creditable for program purposes. Although participation in Social Security is compulsory for most workers, about 6% of all workers in paid employment or self-employment are not covered by Social Security in 2019.

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 2019, about 1.9 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP. Those workers mainly include state and local government employees covered by alternative staff-retirement systems as well as most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS).

WEP's supporters argue that the formula is a reasonable means to prevent overgenerous payments and unintended benefits to people who have earnings not covered by Social Security and receive pensions from noncovered work. Opponents argue that the provision substantially reduces a benefit that workers may have included in their retirement plans, and it reduces benefits disproportionately for lower-earning households. Others criticize the current WEP formula as an imprecise way to determine the actual windfall when applied to individual cases.

Recent legislation has generally proposed either to eliminate the provision for all or some affected beneficiaries, or replace the current-law provision with a new proportional formula based on past earnings from both covered and noncovered employment.


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 earnings credits (or about 10 years of covered work), whereas disabled workers generally need fewer earnings credits.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 wage 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 age 62, becomes disabled, or dies.7 For workers whose ELY is 2020, the PIA is determined as follows in Table 1.

Table 1. Social Security Benefit Formula for Workers Who First Become Eligible
in 2020

Factor

Average Indexed Monthly Earnings (AIME)

90%

of the first $960, plus

32%

of AIME over $960 and through $5,785 (if any), plus

15%

of AIME over $5,785 (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 2020 for someone with a 40% factor.

Table 2. Hypothetical Scenario: PIA for a Worker with AIME of $1,500 Who Becomes Eligible in 2020 and Has 20 Years of Substantial Coverage

Regular Formula

WEP Formula

90% of first $960

$864.00

40% of first $960

$384.00

32% of earnings over $960
and through $5,785

172.80

32% of earnings over $960
and through $5,785

172.80

15% over $5,785

0.00

15% over $5,785

0.00

Total before rounding

$1,036.80

Total before rounding

$556.80

Source: CRS.

Note: PIA = Primary Insurance Amount. AIME = Average Indexed Monthly Earnings.

In this scenario, the monthly benefit is $480.00 lower under the WEP than under the regular benefit formula ($1,036.80 minus $556.80). 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 $960, the WEP reduction remains a flat $480 per month. For example, if the worker had an AIME of $4,000 instead of $1,500, the WEP reduction would still be $480 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 2020, 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 2020:a

 

$480

$432

$384

$336

$288

$240

$192

$144

$96

$48

$0

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 2020 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 2020, 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 Affected by the WEP

According to the Social Security Administration (SSA), as of December 2019, about 1.9 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 2019.18 Of retired workers affected by the WEP, approximately 57% were men (Table 5).

Table 4. Number of Social Security Beneficiaries in Current Payment Status with Benefits Affected by WEP, by State and Type of Beneficiary, December 2019

State

Total

Type of Beneficiary

 

 

Retired
Workers

Disabled Workers

Spouses and Children

Total

1,912,706

1,797,415

12,943

102,348

Alabama

18,590

17,421

175

994

Alaska

12,051

11,529

59

463

Arizona

37,048

35,007

207

1,834

Arkansas

10,650

10,120

125

405

California

266,728

251,501

1,664

13,563

Colorado

65,659

62,439

781

2,439

Connecticut

20,196

19,390

99

707

Delaware

4,376

4,182

31

163

District of Columbia

7,488

7,246

52

190

Florida

105,764

99,561

584

5,619

Georgia

55,458

53,113

430

1,915

Hawaii

11,351

10,574

43

734

Idaho

8,699

8,165

67

467

Illinois

98,706

94,682

415

3,609

Indiana

17,553

16,591

147

815

Iowa

8,395

8,003

65

327

Kansas

9,522

9,050

83

389

Kentucky

25,022

23,942

182

898

Louisiana

46,507

43,835

598

2,074

Maine

18,961

18,239

88

634

Maryland

47,808

45,572

279

1,957

Massachusetts

80,097

77,043

560

2,494

Michigan

22,365

20,990

196

1,179

Minnesota

16,813

16,090

77

646

Mississippi

9,832

9,300

92

440

Missouri

40,251

38,879

235

1,137

Montana

6,516

6,187

29

300

Nebraska

5,635

5,369

43

223

Nevada

34,363

33,016

233

1,114

New Hampshire

8,636

8,223

81

332

New Jersey

23,284

21,739

209

1,336

New Mexico

13,855

12,933

116

806

New York

33,190

30,854

249

2,087

North Carolina

31,418

29,940

191

1,287

North Dakota

2,352

2,247

11

94

Ohio

148,669

142,071

1,342

5,256

Oklahoma

17,645

16,682

154

809

Oregon

18,299

17,272

91

936

Pennsylvania

37,078

34,898

313

1,867

Rhode Island

5,935

5,702

46

187

South Carolina

19,362

18,388

126

848

South Dakota

4,000

3,842

21

137

Tennessee

21,752

20,651

135

966

Texas

189,031

179,306

1,176

8,549

Utah

14,183

13,157

91

935

Vermont

2,694

2,549

13

132

Virginia

49,184

46,405

173

2,606

Washington

34,257

31,939

167

2,151

West Virginia

6,373

5,920

70

383

Wisconsin

12,683

12,074

69

540

Wyoming

2,574

2,450

20

104

Outlying Areas and Foreign Countries

103,848

81,137

440

22,271

Source: CRS, based on unpublished data from Social Security Administration (SSA), Office of Research, Evaluation, and Statistics (ORES), Table B, January 2020.

Table 5. Number of Social Security Worker Beneficiaries in Current Payment Status with Benefits Affected by WEP, by Gender and Type of Beneficiary, December 2019

Gender

All Workers

Retired Workers

Disabled Workers

All Beneficiaries

1,810,358

1,797,415

12,943

Women

784,072

777,935

6,137

Men

1,026,286

1,019,480

6,806

Source: CRS, based on unpublished data from SSA, ORES, Table W01, January 2020.

For data on the number and share of Social Security beneficiaries affected by the WEP in December 2018, 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 ($960 in 2020), 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 2020 this threshold is $25,575 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 29 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.

Legislative Activity on the WEP in the 116th Congress

H.R. 141 (the Social Security Fairness Act of 2019) and S. 521 were introduced by Representative Rodney Davis on January 3, 2019, and Senator Sherrod Brown on February 14, 2019, respectively. The legislation would repeal the WEP and 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.22 The elimination of the WEP and GPO would apply to benefits payable for months after December 2019. 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.23 The 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.24

S. 710 (the Social Security Fairness for Firefighters and Police Officers Act) was introduced by Senator Pat Toomey on March 7, 2019. The bill would exempt certain firefighters and police officers with five years of qualified service from the WEP and the GPO.25

Past legislation has suggested replacing the WEP with a new proportional formula for new beneficiaries. The proportional formula applies the regular Social Security benefit formula to all past earnings from covered and noncovered employment. The resulting benefit would then be reduced by the ratio of career-average earnings from covered employment to career-average earnings from both covered and noncovered employment (i.e., combined earnings). Based on the estimate from OCACT, among all current beneficiaries in 2018, about 69% of those affected by the WEP would receive an increase in Social Security benefits using the proportional formula, and the remaining 31% would receive a lower benefit. In addition, 13.5 million beneficiaries who are not affected by the current WEP would receive a lower benefit using the proportional formula.26 Most workers who are not affected by the current WEP but would be affected by the proportional formula are those with noncovered employment who have 30 or more years of substantial covered earnings, or those with noncovered employment who are not receiving noncovered pension benefits; both groups are exempt from the WEP under current law. To protect future beneficiaries from further benefit reduction compared with the current law, the 2019 legislation based on the proportional formula generally attempts to hold beneficiaries harmless to a certain degree by providing the higher benefit of the current-law WEP or the proportional formula.

On July 24, 2019, H.R. 3934 (the Equal Treatment of Public Servants Act) was introduced by Representative Kevin Brady. The legislation would replace the WEP with the new proportional formula for individuals who would become eligible for OASDI benefits in 2022 or later. Individuals becoming eligible between 2022 and 2060 would receive the higher of their benefit under the current-law WEP or the proportional formula. The proposal would also provide a rebate payment starting in 2022 for workers (up to $100 per month) and their dependents (up to $50 per month) affected by the current WEP. In 2019, OCACT estimated that the legislation would increase program cost by about $23.1 billion (mainly from the rebate) over the period 2020 through 2029, and would have no significant effect on the Social Security trust funds' long-range (75 years) actuarial balance.27

H.R. 4540 (the Public Servants Protection and Fairness Act) was introduced by Representative Richard E. Neal on September 27, 2019. Similar to H.R. 3934, the legislation would replace the WEP with the new proportional formula for individuals who would become eligible for OASDI benefits in 2022 or later. However, unlike H.R. 3934, all individuals becoming eligible on and after 2022 would receive the higher of their benefit under the current-law WEP or the proportional formula. Also, as under current law, workers with 30 or more years of substantial earnings and those not receiving noncovered pension benefits would be exempt from the WEP. The proposal would provide a rebate payment starting nine months after enactment for retired-worker and disabled-worker beneficiaries affected by the current WEP (up to $150 per month), but not for their dependents. The proposal's cost would be covered by transfers from general revenues. In 2019, OCACT estimated that the legislation would increase program expenditures by about $34.3 billion (mainly from the rebate) between 2020 and 2029, which would be reimbursed from the General Fund of the U.S. Treasury. In the long run (75 years), the projected program cost would increase by an amount equal to 0.02% of taxable payroll, and the projected program income would increase by the same amount with transfers from the General Fund, thus having no significant effect on the combined trust funds' actuarial balance.28

In addition, H.R. 5529 (the Social Security Equity Act of 2019) was introduced by Representative Adam Smith on December 19, 2019. The bill would change the current-law WEP formula such that the WEP benefit reduction for most affected workers would be lower relative to current law.29

At the time of this report, Congress has not acted on any of the legislative proposals discussed above.

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 2018

State

Total

Type of Beneficiary

 

 

Retired
Workers

Disabled Workers

Spouses and Children

Total

1,863,084

1,747,212

13,345

102,527

Alabama

18,699

17,464

195

1,040

Alaska

11,518

10,994

74

450

Arizona

35,517

33,484

226

1,807

Arkansas

10,643

10,106

125

412

California

259,059

243,863

1,719

13,477

Colorado

62,850

59,773

751

2,326

Connecticut

19,609

18,835

108

666

Delaware

4,284

4,096

33

155

District of Columbia

7,611

7,356

58

197

Florida

102,798

96,542

636

5,620

Georgia

54,100

51,726

421

1,953

Hawaii

11,088

10,302

40

746

Idaho

8,291

7,780

63

448

Illinois

96,573

92,510

444

3,619

Indiana

17,116

16,167

136

813

Iowa

8,361

7,965

59

337

Kansas

9,469

8,974

91

404

Kentucky

24,484

23,347

194

943

Louisiana

44,490

41,729

612

2,149

Maine

18,300

17,558

99

643

Maryland

47,965

45,628

295

2,042

Massachusetts

76,608

73,549

564

2,495

Michigan

21,967

20,583

201

1,183

Minnesota

16,965

16,173

95

697

Mississippi

9,788

9,217

102

469

Missouri

39,336

37,917

252

1,167

Montana

6,387

6,061

27

299

Nebraska

5,587

5,325

40

222

Nevada

32,754

31,432

216

1,106

New Hampshire

8,367

7,945

84

338

New Jersey

23,089

21,527

236

1,326

New Mexico

13,666

12,698

127

841

New York

33,052

30,681

263

2,108

North Carolina

30,966

29,464

198

1,304

North Dakota

2,387

2,271

13

103

Ohio

143,576

136,980

1,304

5,292

Oklahoma

17,585

16,561

159

865

Oregon

17,921

16,887

99

935

Pennsylvania

36,898

34,662

325

1,911

Rhode Island

5,780

5,551

46

183

South Carolina

19,075

18,099

132

844

South Dakota

3,967

3,814

18

135

Tennessee

21,332

20,177

141

1,014

Texas

181,273

171,528

1,189

8,556

Utah

14,033

12,985

92

956

Vermont

2,713

2,557

14

142

Virginia

49,362

46,430

213

2,719

Washington

33,610

31,254

197

2,159

West Virginia

6,337

5,861

74

402

Wisconsin

12,632

11,987

74

571

Wyoming

2,556

2,437

14

105

Outlying Areas and Foreign Countries

100,690

78,400

457

21,833

Source: CRS, based on unpublished data from SSA, ORES, Table B, February 2019.

Table A-2. Percentage of Social Security Beneficiaries in Current Payment Status Affected by the WEP, by State and Type of Beneficiary, December 2018

State

All Beneficiaries

Type of Beneficiary

 

 

Retired
Workers

Disabled Workers

Spouses and Children

Total

3.0%

4.0%

0.2%

1.5%

Alabama

1.6%

2.5%

0.1%

0.8%

Alaska

11.4%

15.3%

0.6%

3.7%

Arizona

2.6%

3.4%

0.1%

1.4%

Arkansas

1.5%

2.3%

0.1%

0.5%

California

4.3%

5.7%

0.3%

2.1%

Colorado

7.2%

9.4%

0.8%

2.7%

Connecticut

2.9%

3.8%

0.1%

1.1%

Delaware

2.0%

2.6%

0.1%

0.8%

District of Columbia

9.2%

12.8%

0.4%

2.6%

Florida

2.2%

2.8%

0.1%

1.3%

Georgia

3.0%

4.2%

0.2%

1.0%

Hawaii

4.1%

4.9%

0.2%

3.2%

Idaho

2.4%

3.1%

0.1%

1.3%

Illinois

4.3%

5.8%

0.2%

1.6%

Indiana

1.3%

1.8%

0.1%

0.6%

Iowa

1.3%

1.7%

0.1%

0.6%

Kansas

1.7%

2.3%

0.1%

0.7%

Kentucky

2.5%

3.9%

0.1%

0.8%

Louisiana

4.9%

7.7%

0.4%

1.7%

Maine

5.3%

7.5%

0.2%

1.9%

Maryland

4.8%

6.3%

0.2%

2.1%

Massachusetts

6.0%

8.4%

0.3%

1.9%

Michigan

1.0%

1.4%

0.1%

0.5%

Minnesota

1.6%

2.1%

0.1%

0.7%

Mississippi

1.5%

2.2%

0.1%

0.6%

Missouri

3.0%

4.3%

0.1%

0.9%

Montana

2.7%

3.5%

0.1%

1.4%

Nebraska

1.6%

2.1%

0.1%

0.7%

Nevada

6.1%

7.9%

0.3%

2.4%

New Hampshire

2.7%

3.7%

0.2%

1.1%

New Jersey

1.4%

1.8%

0.1%

0.8%

New Mexico

3.1%

4.3%

0.2%

1.7%

New York

0.9%

1.2%

0.1%

0.6%

North Carolina

1.5%

2.0%

0.1%

0.7%

North Dakota

1.8%

2.3%

0.1%

0.8%

Ohio

6.1%

8.7%

0.4%

2.1%

Oklahoma

2.2%

3.2%

0.1%

1.0%

Oregon

2.1%

2.6%

0.1%

1.2%

Pennsylvania

1.3%

1.8%

0.1%

0.7%

Rhode Island

2.6%

3.5%

0.1%

0.9%

South Carolina

1.7%

2.3%

0.1%

0.8%

South Dakota

2.2%

2.9%

0.1%

0.8%

Tennessee

1.5%

2.1%

0.1%

0.7%

Texas

4.3%

6.1%

0.2%

1.6%

Utah

3.5%

4.6%

0.2%

1.8%

Vermont

1.8%

2.4%

0.1%

1.0%

Virginia

3.2%

4.3%

0.1%

1.8%

Washington

2.5%

3.2%

0.1%

1.7%

West Virginia

1.3%

2.0%

0.1%

0.6%

Wisconsin

1.0%

1.3%

0.0%

0.5%

Wyoming

2.3%

3.0%

0.1%

1.0%

Outlying Areas and Foreign Countries

11.6%

15.7%

0.3%

15.9%

Source: CRS analysis of data from the following sources: SSA, ORES, Table B, February 2019 (unpublished); and SSA, ORES, Congressional Statistics, 2018, at https://www.ssa.gov/policy/docs/factsheets/cong_stats/2018/index.html.

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

Zhe Li, Analyst in Social Policy ([email address scrubbed], [phone number scrubbed])

Acknowledgments

This report previously was authored by multiple former CRS analysts. CRS would like to thank SSA's Office of Research, Evaluation, and Statistics provided 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.

A worker may earn up to four earnings credits per calendar year. In 2020, a worker earns one credit for each $1,410 of covered earnings, up to a maximum of four credits for covered earnings of $5,640 or more. Earnings credits are also called quarters of coverage. See Social Security Administration (SSA), How You Earn Credits, Publication No. 05-10072, January 2020, 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 2020 is different from the benefit formula for a worker with an ELY in any other year. For bend point amount for years prior to 2020, 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, https://secure.ssa.gov/apps10/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 $1,036.80 under the regular benefit formula in 2020, the WEP reduction of $480.00 represents a cut of approximately 46% to the regular formula monthly benefit amount. By comparison, a worker with an AIME of $4,000 would be entitled to a PIA of $1,836.80 under the 2020 regular benefit formula, and the same WEP reduction of $480.00 per month would represent a 26% 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 2020, the old-law taxable earnings base is equal to $102,300; therefore, to earn credit for one year of substantial employment under the WEP, a worker would have to earn at least $25,575 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 1, 2019, 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.

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).

23.

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).

24.

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.

25.

Qualified service is defined in 34 U.S.C. §10284.

26.

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Kevin Brady, U.S. House, July 24, 2019, https://www.ssa.gov/oact/solvency/KBrady_20190724.pdf. The projections are based on the intermediate assumptions of the 2019 Social Security trustees report.

27.

Ibid.

28.

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Richard Neal, U.S. House, September 30, 2019, https://www.ssa.gov/oact/solvency/RNeal_20190930.pdf. The projections are based on the intermediate assumptions of the 2019 Social Security trustees report.

29.

H.R. 5529 would revise the current WEP formula for the PIA computation to (1) lower from 30 to 25 the number of years of coverage required for exemption from the WEP; (2) alter the determination of partial exemptions for those who have more than 20 but less than 25 years of coverage; and (3) reduce the dollar amount required for a year of substantial coverage.