Social Security Retirement Earnings Test (RET): Earnings Exemption for COVID-19-Related Work Response

Social Security Retirement Earnings Test (RET): Earnings Exemption for COVID-19-Related Work Response

INSIGHTi
Social Security Retirement Earnings Test
(RET): Earnings Exemption for COVID-19-
Related Work Response
Updated September 28, 2020
In response to the Coronavirus Disease 2019 (COVID-19) outbreak, some state and local officials (e.g.,
New York State) have cal ed on retired health care workers to return to work and help treat the influx of
patients. In addition to health care professionals, other retired workers—including certain public safety
officers, emergency management personnel, scientists, researchers, and individuals—who had claimed
Social Security benefits, may also go back to work to meet the essential needs of the American public
during the COVID-19 outbreak.
If those retired workers are receiving Social Security benefits and are under the Social Security full
retirement age (FRA; between 65 and 67, depending on year of birth), the Retirement Earnings Test
(RET) may reduce their Social Security benefits if their earnings exceed certain annual thresholds.
(Beneficiaries do recoup their benefits when they reach FRA.) Therefore, in response to RET concerns
that may discourage retired health care workers from providing needed services to the increasing number
of COVID-19 patients, lawmakers have proposed to exempt certain earnings in 2020 from the RET. For
example,
 H.R. 6428 would exempt the earnings of individuals employed in the health care
workforce or as a first responder (as determined by the Social Security Commissioner) in
2020 from the RET; and
 H.R. 6554 would exempt the earnings of individuals at or below $137,700 in 2020 (or the
Social Security contribution and benefit base) from the RET.
Retirement Earnings Test
Social Security retired-worker benefits are first payable at age 62. Social Security retirement benefits
received between age 62 and FRA are general y subject to an actuarial reduction for early retirement and
may be reduced by the RET if the beneficiary has earnings that exceed the annual thresholds. The original
RET objective was to ensure that no Social Security benefits would be paid before a person had “retired
from gainful employment.” In 2020, a beneficiary who is below FRA and wil not attain FRA during the
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year is subject to a $1 reduction in benefits for every $2 of earnings above $18,240. A beneficiary who
wil attain FRA in 2020 is subject to a $1 reduction in benefits for every $3 of earnings above $48,600.
If a beneficiary is affected by the RET, his or her monthly Social Security benefit may be reduced, in part
or in full, depending on the total applicable reduction. The RET affects spousal and children’s benefits,
which are based on the beneficiary’s work record, but does not apply to Social Security disability
beneficiaries, who are subject to separate limitations on earnings.
A less widely understood RET feature is that beneficiaries recoup the benefit lost due to the RET. For
example, a RET-affected beneficiary’s monthly benefit is recomputed, and the dollar amount of the
monthly benefit is increased based on months subject to the RET, when he or she attains FRA. This
benefit recomputation at FRA adjusts (lessens) the actuarial reduction for RET for early retirement.
The Social Security Administration’s (SSA’s) Office of the Chief Actuary (OCACT) estimates that about
520,000 beneficiaries below FRA would have their benefits reduced or completely withheld due to the
RET in 2019.
Effects of Eliminating the RET for All Retired-Worker Beneficiaries
In 2000, P.L. 106-182, the most recent legislative RET change, eliminated the RET for beneficiaries
beginning with the month they attain FRA. Quantitative studies based on historical data imply that
eliminating the RET for al beneficiaries would likely result in
 a smal group of nonworking early retirees choosing to go back to work;
 working early retirees receiving benefits without the RET reduction, and those with
earnings below the annual thresholds choosing to work more hours, whereas a smal
group with Social Security benefits that were previously withheld by the RET choosing
to work less hours; and
 certain workers who initial y planned to retire later choosing to continue working and
receiving Social Security benefits early without the RET reduction, but then being subject
to the permanent actuarial reduction for receiving Social Security benefits before FRA.
The OCACT estimated that eliminating the RET in 2020 for al retired-worker beneficiaries under FRA
would cost $20.4 bil ion in that year as a result of the populations who would receive higher benefits as
explained above. Under a RET repeal, many affected retired-worker beneficiaries would receive a
permanent reduction in their monthly benefits (due to claiming benefits before their FRA), and this
permanent reduction would no longer be lessened after FRA (unless there is a year of earnings high
enough to impact the basic benefit)—thus their monthly benefit amount would be lower for the rest of
their lives. This would likely reduce the Social Security program cost in the long run, but it would likely
increase poverty rates among the older population (Anzick and Weaver, 2000 and Figinski and Neumark,
2015).
COVID-19-Related Work Responses and the RET
In response to the COVID-19 outbreak, tentatively exempting certain earnings from the RET for health
care providers and other workers would likely encourage those retired workers who had claimed Social
Security benefits before their FRA to go back to work. It could also encourage some retirees who are
currently receiving Social Security benefits before their FRA and working below the RET earnings
thresholds to work more hours. It may also provide an incentive for some workers (typical y between age
62 and FRA) to claim Social Security benefits early, resulting in permanent actuarial reduction in their
monthly benefits (to take into account the longer expected period of benefit receipt). After the exemption

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period, benefits would be reduced by the resumed RET for those continuing to work above the annual
thresholds, but increased accordingly after FRA based on a recomputation.
For current RET reductions, SSA general y relies on total earnings from al employment without
identifying the types of those earnings. Exempting certain types of earnings from the RET may require
SSA to identify earnings based on types of employers and work. It is not clear if SSA’s earnings records
contain sufficient details to make such determinations. Alternatively, SSA may base the RET exemption
on self-reported beneficiary information to determine if their earnings are related to the COVID-19 work
response. Such self-reports may be subject to errors and misreporting and therefore may lead to
overpayments or underpayments.

Author Information

Zhe Li

Analyst in Social Policy

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