Social Security: Special Minimum Benefit and Windfall Elimination Provision

Social Security: Special Minimum Benefit and Windfall Elimination Provision

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November 16, 2021
Social Security: Special Minimum Benefit and Windfall
Elimination Provision
Background
because their regular benefits would be higher than the
Social Security is a work-related, federal insurance program
Special Minimum PIA.
that provides cash benefits to workers and their eligible
family members in the event of the worker’s retirement,
As of December 2020, about 28,456 of the roughly 65
disability, or death. Workers become eligible for future
million Social Security beneficiaries qualified for the
benefits by working in Social Security-covered employment
special minimum benefit.
(e.g., workers and their employers pay payroll taxes based
on covered earnings). Among other requirements, a worker
Windfal Elimination Provision (WEP)
generally needs 40 quarters of coverage or QCs (10 years of
The WEP is a modified benefit formula designed to remove
Social Security-covered employment) to be eligible for a
the unintended advantage, or “windfall,” of the regular
Social Security retired-worker benefit. A worker may earn
progressive benefit formula for certain retired or disabled
up to four QCs per calendar year (earnings of $5,880 in
workers (and their dependents) who spent less than full
2021 for four QCs).
careers in covered employment and who are also entitled to
pension benefits based on earnings from jobs not covered
The special minimum benefit and the Windfall Elimination
by Social Security (e.g., certain state and local government
Provision (WEP) are two distinct provisions that may affect
employees). The WEP applies to most beneficiaries who
Social Security benefits for certain workers and their
had both fewer than 30 years of substantial earnings in
dependents. Understanding the interaction between the two
Social Security-covered employment and a pension from
provisions may be helpful to policymakers when they
non-covered work.
consider changes to these provisions.
Under the WEP, a worker receives a year of coverage if he
Special Minimum Benefit
or she has covered substantial earnings at or above 25% of
Social Security’s special minimum benefit provision, also
the old law contribution and benefit base. The substantial
known as the Special Minimum Primary Insurance Amount
earnings required for a year of coverage are $26,550 in
(PIA), is an alternative benefit formula that increases
2021. For people who become eligible for benefits in 2021
benefits paid to workers who had low earnings for many
and have 20 or fewer years of substantial earnings, the
years, and to their dependents and survivors. The Special
WEP reduces the Social Security monthly benefit by $498
Minimum PIA is based on the number of years a person has
(subject to other benefit adjustments). The monthly WEP
worked with earnings at or above a specified threshold,
reduction decreases by about $50 for each additional year
whereas the regular benefit formula is based on a worker’s
of substantial earnings; a worker with 30 or more years of
average lifetime earnings. The worker receives the higher
substantial earnings is no longer subject to the WEP.
of the two benefits (but not both).
As of December 2020, about 1.9 million beneficiaries (or
Under the Special Minimum PIA, a person earns a year of
about 3% of all Social Security beneficiaries) were affected
coverage if the worker has covered earnings equal to or
by the WEP.
greater than 15% of the old law contribution and benefit
base. The earnings required for a year of coverage are
Beneficiaries Affected by WEP Could
$15,930 in 2021. In 2021, for a worker with 11 years of
Receive a Higher Special Minimum PIA
coverage, the Special Minimum PIA would be $43 per
The Special Minimum PIA does not have a WEP provision,
month. It increases by about $45 per month for each
so a beneficiary who has their retired worker benefit
additional year of coverage; a person with 30 or more years
reduced by the WEP may receive a higher special minimum
of coverage would qualify for a Special Minimum PIA of
benefit. Therefore, the special minimum PIA has partly
$898 per month.
reversed the impact of the WEP reduction for beneficiaries
who are affected by both provisions.
The Special Minimum PIA has virtually no effect on the
benefits paid to today’s new retirees. Under current law, it
Figure 1 displays the Special Minimum PIA and WEP PIA
grows with price levels, whereas the regular benefit is
for three hypothetical workers who would be affected by
linked to wages. Because wages generally grow faster than
the WEP. Each worker is assumed to have worked 20 years
prices, the Special Minimum PIA affects fewer
in covered employment and received the substantial
beneficiaries every year. The Social Security
earnings amount required by the WEP each year. For the
Administration (SSA) estimates that the provision would
workers who became eligible for Social Security benefits in
have no effect on workers turning 62 in 2022 or later
2000 and 2010, the Special Minimum PIA would be greater
than WEP PIA; thus, both workers would receive the higher
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Social Security: Special Minimum Benefit and Windfal Elimination Provision
special minimum benefit. Because of the diminishing effect
required for each year of coverage (e.g., the amount needed
of the special minimum benefit, the worker who became
for four QCs) and increase the monthly benefit amount to a
eligible in 2020 would receive a higher WEP PIA.
level above the poverty line (e.g., 125% of the federal
poverty guideline). These proposed changes could generaly
Figure 1. Monthly Special Minimum PIA and WEP
allow more beneficiaries to become eligible for the Special
PIA for Hypothetical Workers Affected by the WEP
Minimum PIA and receive a larger benefit amount
Assumes the individual worked in covered employment for 20
compared to current law. Without a WEP-like adjustment to
years from age 41 to 60 and earned exactly 25% of the old
the proposed special minimum benefit, the following may
law contribution and benefit base annually in those years
occur:
 More beneficiaries affected by the WEP may become
eligible for the proposed improved Special Minimum
PIA and receive a higher benefit amount.
 As more beneficiaries become eligible for the proposed
improved Special Minimum PIA, the percentage of
those beneficiaries who would be affected by the WEP
may gradually decrease to the 2000 level (11%) or
lower.
The special minimum benefit was enacted in 1972 (P.L. 92-
603). The provision was designed to increase benefit
adequacy among full-time, full-career minimum wage
earners, and to help those workers reduce dependence on
means-tested cash assistance. The provision was also
designed to avoid providing windfalls to persons with little
or sporadic attachment to the covered workforce. If the
objective remains the same today, it may be reasonable to
Source: CRS and Social Security Administration,
make beneficiaries affected by the WEP ineligible to
http://www.socialsecurity.gov/cgi-bin/smt.cgi.
receive the proposed expanded Special Minimum PIA.
Notes: The Special Minimum PIA in each year was the amount
effective in the December of the prior year. Workers’ WEP
Figure 2. Number of Families Receiving the Special
reductions are assumed to not be affected by other adjustments. The
Minimum PIA by WEP Status, 2000, 2013, and 2020
benefit level is measured when the worker turns age 62, and no early
retirement reduction is applied.
The Diminishing Effect of the Special
Minimum PIA and Its Relationship with
the WEP
The impact of the Special Minimum PIA has diminished
over time as the number of Social Security beneficiaries
eligible for the provision decreased from 205,031 in 1991
(about 0.5% of all beneficiaries) to 28,456 in 2020 (less
than 0.1% of all beneficiaries ).
SSA has published three actuarial notes regarding the
diminishing effect of the special minimum benefit on
beneficiaries in 2000, 2013, and 2020 (see Figure 2). In
2000, among the roughly 95,800 families (estimated based
on 1% sample) who were receiving the Special Minimum
PIA, about 11% were affected by the WEP. This percentage
increased to 39% in 2013 and to 71% in 2020. The

proportion of the special minimum benefit population
Source: Social Security Administration, Actuarial Note No.143, 154,
affected by the WEP increased over the past two decades,
and 162 (by Craig A. Feinstein).
mainly because the Special Minimum PIA has affected very
Notes: The number of families in 2000 is estimated based on 1%
few newly eligible beneficiaries whose benefits were based
sample. A family may include one or more beneficiaries.
on the regular benefit formula (those not affected by the
WEP) since 2000.
Additional Information
CRS Report R43615, Social Security: Minimum Benefits
Proposals to Change the Special
Minimum Benefit
Zhe Li, Analyst in Social Policy
Proposals to expand eligibility for the special minimum
benefit usually would lower the amount of earnings
IF11975
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Social Security: Special Minimum Benefit and Windfal Elimination Provision

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