Social Security: The Public Servant Retirement Protection Act (H.R. 2772/S. 1647)

Order Code RL32477 Social Security: The Public Servant Retirement Protection Act (H.R. 2772/S. 1647) Updated July 9, 2007 Laura Haltzel Specialist in Social Security Domestic Social Policy Division Social Security: The Public Servant Retirement Protection Act (H.R. 2772/S. 1647) Summary A worker is “covered” by Social Security if he or she pays into Social Security through the Old-Age, Survivors, and Disability Insurance (OASDI) payroll tax. Currently 96% of all workers are covered by Social Security. The majority of noncovered positions are held by federal, state, and local government employees. The current-law Windfall Elimination Provision (WEP) reduces the Social Security retirement or disability benefits of workers who also receive a pension from employment not covered by Social Security. The goal of the WEP was to remove an unintended advantage that the regular Social Security benefit formula provided to employees who divided their careers between covered and non-covered positions. As of December 2006, approximately 971,300 beneficiaries (approximately 2% of the entire beneficiary population at that time) had their benefits reduced as a result of the current-law WEP. On June 19, 2007, Representative Kevin Brady introduced H.R. 2772, the Public Servant Retirement Protection Act (PSRPA), which would alter the current-law WEP formula for those who first enter non-Social Security-covered employment one year after the bill’s enactment. The PSRPA would maintain the current-law WEP for workers who have worked in non-covered employment prior to this date except in cases where the PSRPA WEP provides them with a higher benefit. On June 19, 2007, Senator Kay Bailey Hutchison introduced the sister bill, S. 1647. Both bills would replace the current-law WEP formula with a new WEP formula that provides a benefit in rough proportion to the percentage of earnings worked in Social Securitycovered employment. When compared to current-law, the effect of the PSRPA WEP on a worker’s benefit levels varies both by earnings level and the number of years of Social Security covered-earnings. The current-law WEP generally provides a benefit that increases with additional years of Social Security coverage. By contrast, the key determinant of the new proportional benefit amount is the percentage of the highest 35 years of covered and non-covered earnings that can be attributed to Social Security covered work — the higher the value of these covered earnings compared to the highest 35 years of covered and non-covered earnings, the larger the benefit under the PSRPA. Thus, the PSRPA WEP provides a benefit that increases with a rise in the proportion of Social Security covered earnings relative to overall earnings, regardless of the number of years worked in Social Security covered employment. This report will be updated as legislative activity warrants. Contents Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Current-Law Windfall Elimination Provision (WEP) . . . . . . . . . . . . . . . . . . . . . 1 Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Social Security-Covered and Non-Covered Work . . . . . . . . . . . . . . . . . . . . . 4 Who is Currently Affected by the WEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The “Public Servant Retirement Protection Act” (PSRPA) . . . . . . . . . . . . . . . . 10 Future Non-Covered Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Applies a New, Proportional PIA Formula to Those Who First Begin Non-Covered Employment One Year after the Bill’s Enactment 10 Current and Past Non-Covered Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Holds Harmless Individuals Who Already Work or Have Worked in Non-Covered Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 How Will the PSRPA Affect Benefits? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Earnings Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Number of Years of Covered Earnings . . . . . . . . . . . . . . . . . . . . . . . . 17 Assumptions and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Appendix: Benefit Amounts Under Current-Law and PSRPA by Earnings Level and Years of Social Security Covered Earnings . . . . . . . . . 20 List of Figures Figure 1. Current-Law WEP, Scaled Average-Wage Earner . . . . . . . . . . . . . . . . 3 Figure 2. Current-Law WEP and PSRPA WEP, Scaled Average-Wage Earner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 3. Current-Law WEP and PSRPA WEP, Minimum Wage Earner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 4. Current-Law WEP and PSRPA WEP, Scaled Low-Wage Earner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 5. Current-Law WEP and PSRPA WEP, Scaled High-Wage Earner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 6. Current-Law WEP and PSRPA WEP, Maximum-Wage Earner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 7. Percent Change in WEP Benefit Under PSRPA Compared to Current Law, by Earnings Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 8. Percent Change in WEP Benefit Under PSRPA Compared to Current Law, by Years of Covered Earnings . . . . . . . . . . . . . . . . . . . . . . 17 List of Tables Table 1. Estimated Social Security Coverage of Workers with State and Local Government Employment, 2005 . . . . . . . . . . . . . . . . . . . . . 4 Table 2. Number of Beneficiaries in Current Payment Status with Benefits Affected by Windfall Elimination Provision (WEP), by State and Type of Benefit, December 2006 . . . . . . . . . . . . . . . . . . . . . . . 6 Table 3. Number of Beneficiaries in Current Payment Status with Benefits Affected by the Windfall Elimination Provision (WEP), by Gender and Type of Benefit, December 2006 . . . . . . . . . . . . . . . . . . . . . . 8 Table 4. Number of Individuals Affected by the Windfall Elimination Provision, by Gender and Number of Years of Coverage, December 2006 . . . . . . . . . . 8 Table 5. Minimum-Wage Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Table 6. Scaled Low-Wage Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Table 7. Scaled Average-Wage Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table 8. Scaled High-Wage Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 9. Maximum-Wage Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Social Security: The Public Servant Retirement Protection Act (H.R. 2772/S. 1647) Background The Windfall Elimination Provision (WEP) reduces certain Social Security benefits of workers who also have pension benefits from employment not covered by Social Security. On June 19, 2007, Representative Kevin Brady introduced H.R. 2772, the Public Servant Retirement Protection Act (PSRPA), which would alter the current-law WEP formula for those who first enter non-Social Security-covered employment one year after the bill’s enactment. The PSRPA would maintain the current-law WEP for workers who have worked in non-covered employment prior to this date except in cases where the PSRPA WEP provides them with a higher benefit. On June 19, 2007, Senator Kay Bailey Hutchison introduced the sister bill, S. 1647. Both bills would replace the current-law WEP formula with a new WEP formula that provides a benefit in rough proportion to the percentage of earnings worked in Social Security-covered employment. Current-Law Windfall Elimination Provision (WEP) The current-law WEP reduces the Social Security retirement or disability benefits of workers who also receive a pension from employment not covered by Social Security.1 The base Social Security benefit, the Primary Insurance Amount (PIA), is the amount that a worker would receive as a Social Security retirement benefit if he or she retired exactly at the full retirement age (65 years and eight months in 2007). The PIA formula applies three progressive factors — 90%, 32%, and 15% — to three different levels, or brackets, of a worker’s average indexed 1 The WEP is sometimes confused with the Government Pension Offset (GPO), which reduces the Social Security spousal benefits of individuals who receive a pension from employment not covered by Social Security. For more information on the GPO, please see CRS Report RL32453, “Social Security: The Government Pension Offset (GPO)” by Laura Haltzel. CRS-2 monthly covered earnings (AIME).2 In 2007, for those who reach age 62 or who become disabled, the PIA formula is 90% of the first $680 of the AIME, PLUS 32% of the AIME between $680 and $4,100, PLUS 15% of the AIME exceeding $4,100. Under current-law, this regular PIA formula is modified for those receiving pensions from non-Social Security covered employment by adjusting the 90% factor based on the number of years the worker had “substantial” employment covered by Social Security (i.e., having earned at least one quarter of the “old-law” Social Security maximum taxable wage base for each year).3 The higher the number of years of substantial Social Security coverage, the higher the first formula factor used in the WEP PIA formula. The lowest formula factor is 40%, which applies to those with 20 or fewer years of substantial Social Security covered employment. For each additional year of substantial Social Security coverage over 20, the formula factor increases by five percentage points until it reaches 90% for those with 30 years of substantial Social Security covered employment — the same first formula factor as under the regular PIA formula. Thus, a worker who would otherwise be subject to the WEP would be exempt from any benefit reduction if he or she had at least 30 years in covered employment. The 32% and 15% PIA formula factors continue to apply as under the regular PIA formula. Figure 1 demonstrates how the benefit level resulting from the current-law WEP formula varies by years of covered earnings for 2 The AIME is a dollar amount that represents the average monthly earnings from Social Security-covered employment over most of the worker’s adult life indexed to the increase in average annual wages. To calculate the AIME for a retired worker, a worker’s earnings prior to age 60 are first indexed to the year that the worker reaches age 60. The highest 35 years of indexed yearly earnings are used to compute the AIME. The sum of the indexed earnings in these 35 years is divided by the number of months in these 35 years to obtain the average indexed monthly earnings. 3 For determining years of coverage after 1978 for individuals with pensions from noncovered employment, the amount is 25% of what the contribution and benefit base otherwise would have been if the 1977 Social Security Amendments had not been enacted. In 2007, the “old-law” taxable wage base is equal to $72,600 and, thus, to earn credit for one “year of coverage” under the WEP, a worker would have to earn at least $18,150 in Social Security-covered employment. CRS-3 a worker with average earnings.4 In no case can the reduction in benefits under the WEP exceed more than half of the pension based on non-covered work. Figure 1. Current-Law WEP, Scaled Average-Wage Earner $3,500 Benefit Level (Constant 2007 Dollars) $3,000 Current Law WEP $2,500 $2,000 $1,500 $1,000 $500 $0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings Rationale The goal of the WEP was to remove an unintended advantage that the regular Social Security benefit formula provided to employees who divide their careers between covered and non-covered positions. The regular Social Security formula is intended to replace a higher proportion of earnings for those workers who spend their working years in low paying jobs relative to those who have high earnings. However, the regular formula cannot differentiate between those who work their whole lives in low-paying jobs and those who simply appear to be low paid because they work for many years in jobs not covered by Social Security. Because those who work in non-Social Security covered positions do not contribute to Social Security through the payroll tax, each year of non-covered employment is recorded as a year 4 A “year of coverage” should not be confused with a “year of covered earnings.” In 2007, to earn credit for one “year of coverage” under the WEP, a worker would have to earn at least $18,150 in Social Security-covered employment. A “year of covered earnings” is any year in which the worker had earnings from Social Security-covered employment, regardless of the amount earned. Because the PSRPA does not rely on the current-law definition of “years of coverage”in calculating WEP benefits (as determined by measuring “substantial earnings”), the common denominator of “years of covered earnings” is used in all charts. For example, in 2007, a minimum-wage worker in Social Security covered-employment would earn $10,712. Although this minimum-wage worker has a year of Social Securitycovered earnings, he or she would not have earned a “year of coverage” towards the currentlaw WEP formula that requires a worker to earn at least $18,150 in Social Security coveredemployment. Any attempt to graphically represent a minimum-wage worker’s current-law benefit under the WEP by “years of coverage” would have been impossible as the minimumwage worker never qualifies for a single “year of coverage.” CRS-4 of zero earnings in the calculation of a worker’s AIME. Thus, workers in noncovered Social Security positions received the advantage of the progressive Social Security 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 formula is intended to remove this advantage for these workers. Social Security-Covered and Non-Covered Work A worker is in a position “covered” by Social Security if he or she pays into Social Security through the Old-Age, Survivors, and Disability Insurance (OASDI) payroll tax. Approximately 96% of all workers are covered. The majority of noncovered positions are held by government employees: most federal employees hired before 1984 and 29% of current state and local government employees. The latest available information on the Social Security coverage of state and local workers is for the year 2005. Nationwide, approximately 71% of state and local government employees are covered.5 However, coverage varies from state to state. For example, approximately 97% of state and local employees in Vermont are covered by Social Security, while only 3% of state and local employees in Ohio are covered.6 Table 1 provides a breakdown of Social Security covered and non-covered employees by state. Table 1. Estimated Social Security Coverage of Workers with State and Local Government Employment, 2005 (in thousands) State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas 5 All Workersa 377 86 425 194 2,493 409 287 66 58 1,173 694 129 140 1,021 493 286 286 Covered Workers 350 41 383 172 1,045 116 193 62 40 1,011 498 77 129 527 441 254 256 Non-Covered Workers 27 45 42 22 1,448 293 94 4 18 162 196 52 11 494 52 32 30 Percent Non-Covered 7% 53% 10% 11% 58% 72% 33% 6% 32% 14% 28% 40% 8% 48% 11% 11% 10% Social Security Administration, Estimated Social Security Coverage of Workers with State and Local Government Employment, 2005. 6 Ibid. CRS-5 State Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Other b Total All Workersa 373 359 127 443 457 802 445 254 469 96 155 149 111 685 210 1,725 698 75 868 305 292 815 291 69 358 79 488 1,749 220 60 650 528 Covered Workers 271 99 63 399 16 712 408 232 340 84 144 33 97 635 185 1,665 643 63 22 268 266 742 256 57 338 72 440 827 199 59 611 468 Non-Covered Workers 102 260 64 44 441 90 37 22 129 12 11 116 14 50 25 60 55 12 846 37 26 73 35 12 20 7 48 922 21 1 39 60 Percent Non-Covered 27% 72% 50% 10% 97% 11% 8% 9% 28% 12% 7% 78% 13% 7% 12% 3% 8% 16% 97% 12% 9% 9% 12% 17% 6% 9% 10% 53% 10% 3% 6% 11% 156 478 77 8 23,741 140 421 67 3 16,940 16 57 10 5 6,801 10% 12% 13% 67% 29% Source: Social Security Administration, Continuous Work History Sample, 1% sample. Notes: Workers with more than one state and local employer during the year are counted for each employer. a. Includes seasonal and part-time workers for whom state and local government employment was not the major job. b. Includes persons employed in American Samoa, Guam and Virgin Islands, U.S. citizens employed abroad by American employers, and persons employed on oceanborne vessels. CRS-6 This variation in coverage occurs because, although Social Security originally did not cover any state and local government workers, over time the law has changed. Most state and local government employees became covered by Social Security through voluntary agreements between the Social Security Administration and individual states.7 Beginning in July 1991, state and local employees who were not members of a public retirement system were mandatorily covered by Social Security because they had no alternative retirement or disability protection.8 Who is Currently Affected by the WEP Individuals who work or who have worked in positions where they did not pay into Social Security are potentially affected by the WEP. As of December 2006, approximately 971,300 beneficiaries (approximately 2% of the entire beneficiary population at that time) had their benefits reduced as a result of the current-law WEP. As Social Security coverage varies by state, so does the number of individuals affected by the WEP. Table 2 below provides a detailed breakdown by state of the number of beneficiaries affected by the WEP. Table 2. Number of Beneficiaries in Current Payment Status with Benefits Affected by Windfall Elimination Provision (WEP), by State and Type of Benefit, December 2006 State Alabama Total Number of WEP Beneficiaries 13,477 Retired Workers Disabled Workers 11,912 261 Spouses Percent of All and Beneficiaries Children in the Statea 1,304 1% Alaska 4,600 4,270 80 250 7% Arizona 17,579 15,978 296 1,305 2% Arkansas 7,788 7,010 200 578 1% California 120,458 109,715 1,588 9,155 3% Colorado 27,957 25,669 316 1,972 5% Connecticut 8,742 8,199 134 409 1% Delaware 2,191 1,994 52 145 1% District of Columbia 5,995 5,629 108 258 8% Florida 56,471 51,346 712 4,413 2% Georgia 27,497 25,361 380 1,756 2% Hawaii 6,214 5,580 86 548 3% Idaho 4,147 3,750 60 337 2% Illinois 49,565 46,288 506 2,771 3% Indiana 9,805 8,847 216 742 1% Iowa 5,712 5,254 64 394 1% Kansas 6,100 5,564 98 438 1% 7 These agreements are known as “Section 218 agreements” because they are authorized by Section 218 of the Social Security Act. 8 P.L. 101-508, The Omnibus Budget Reconciliation Act of 1990, H.Rept. 101-881, p. 358. CRS-7 Kentucky Total Number of WEP Beneficiaries 12,283 Louisiana State Maine Maryland Retired Workers Disabled Workers Spouses Percent of All and Beneficiaries Children in the Statea 906 2% 11,109 268 18,299 16,090 443 1,766 3% 8,644 7,908 143 593 3% 30,674 28,247 428 1,999 4% Massachusetts 32,140 30,165 471 1,504 3% Michigan 12,139 10,930 221 988 1% Minnesota 12,114 11,206 133 775 2% Mississippi 6,624 5,906 146 572 1% Missouri 20,342 18,832 330 1,180 2% Montana 3,545 3,188 62 295 2% Nebraska 3,664 3,376 41 247 1% 12,230 11,401 181 648 3% 4,326 3,959 91 276 2% New Jersey 14,984 13,621 289 1,074 1% New Mexico 8,428 7,362 162 904 3% New York 21,889 19,854 363 1,672 1% North Carolina 17,855 16,321 300 1,234 1% North Dakota 1,810 1,641 14 155 2% Nevada New Hampshire Ohio 70,599 64,752 876 4,971 4% Oklahoma 12,397 11,068 259 1,070 2% 9,643 8,788 137 718 2% 23,640 21,284 482 1,874 1% Oregon Pennsylvania Rhode Island 3,017 2,757 71 189 2% South Carolina 11,114 10,075 169 870 1% South Dakota 2,645 2,437 33 175 2% Tennessee 12,642 11,371 176 1,095 1% Texas 80,990 73,749 1,054 6,187 3% Utah 8,556 7,607 124 825 3% Vermont 1,715 1,559 22 134 1% Virginia 32,442 29,325 412 2,705 3% Washington 18,575 16,486 289 1,800 2% West Virginia 4,305 3,762 105 438 1% Wisconsin 8,028 7,418 99 511 1% Wyoming 1,620 1,483 23 114 2% 53,094 40,696 484 11,914 7% 971,310 878,099 14,058 79,153 2% Outlying areas and Total Source: Social Security Administration, Office of Research, Evaluation and Statistics, May 23, 2007. a. CRS calculations based on Social Security Administration, Office of Research, Evaluation and Statistics, Congressional Statistics Factsheets, May 2007. CRS-8 Of this group affected by the WEP, about 90% were receiving retired worker benefits, about 1% were receiving disabled worker benefits, and about 9% were receiving benefits as spouses or children of insured workers. Spouses and children may have their benefits indirectly reduced as a result of the WEP since their benefits are based on the reduced PIA of the worker. However, the WEP reduction is removed for the calculation of survivor benefits. Of those receiving retirement or disability benefits, approximately 35% were women and 65% were men (see Table 3). Table 3. Number of Beneficiaries in Current Payment Status with Benefits Affected by the Windfall Elimination Provision (WEP), by Gender and Type of Benefit, December 2006 Gender Total Type of Benefit Women Men 312,955 579,202 Retired Workers 308,099 570,000 Total 892,157 878,099 Disabled Workers 4,856 9,202 14,058 Source: Social Security Administration, Office of Research, Evaluation and Statistics, May 23, 2007. The number of affected individuals also varies by years of coverage (years of substantial Social Security covered earnings) that count towards the WEP formula. Table 4 demonstrates that approximately 73% of all individuals currently affected by the WEP had 20 or fewer years of coverage and 19% had 21 or more years of coverage, while the information on years of coverage is not available for about 8% of those affected. Thus, for about 73% of all beneficiaries affected by the current-law WEP, the first formula factor used in the WEP PIA never exceeds 40%. Table 4. Number of Individuals Affected by the Windfall Elimination Provision, by Gender and Number of Years of Coverage, December 2006 Years of Coverage Women Men Total Percent of Total by Years of Coverage Information Not Available 36,534 36,251 72,785 8.2% 0 3,045 1,334 4,379 0.5% 1 4,525 3,309 7,834 0.9% 2 6,556 5,751 12,307 1.4% 3 8,719 8,389 17,108 1.9% 4 10,791 11,629 22,420 2.5% 5 12,747 15,282 28,029 3.1% 6 14,600 18,940 33,540 3.8% 7 16,191 22,380 38,571 4.3% CRS-9 Years of Coverage Women Men Total Percent of Total by Years of Coverage 8 17,858 26,041 43,899 4.9% 9 18,547 29,150 47,697 5.3% 10 18,359 31,383 49,742 5.6% 11 17,290 31,758 49,048 5.5% 12 15,731 29,882 45,613 5.1% 13 13,930 27,550 41,480 4.6% 14 12,413 25,597 38,010 4.3% 15 10,915 23,998 34,913 3.9% 16 9,794 22,308 32,102 3.6% 17 8,891 20,828 29,719 3.3% 18 7,804 19,748 27,552 3.1% 19 6,813 18,616 25,429 2.9% 20 6,169 18,867 25,036 2.8% 21 5,701 19,885 25,586 2.9% 22 4,932 19,034 23,966 2.7% 23 4,548 17,433 21,981 2.5% 24 4,111 15,711 19,822 2.2% 25 3,684 13,834 17,518 2.0% 26 3,419 12,624 16,043 1.8% 27 2,956 11,313 14,269 1.6% 28 2,721 10,179 12,900 1.4% 29 2,625 10,138 12,763 1.4% 30+ 36 60 96 0.0% 312,955 579,202 892,157 100.0% Total Source: Unpublished table, Social Security Administration, Office of Research, Evaluation and Statistics, May 23, 2007. Notes: A “year of coverage” should not be confused with a “year of covered earnings.” Under the current-law WEP, the number of years the worker had “substantial” employment covered by Social Security (i.e., having earned at least one quarter of the “old-law” Social Security maximum taxable wage base for each year) qualifies as a “year of coverage.” In 2007, the “old-law” taxable wage base was equal to $72,600 and, thus, to earn credit for one “year of coverage” under the WEP, a worker would have to earn at least $18,150 in Social Security-covered employment. A “year of covered earnings” is any year in which the worker had earnings from Social Security-covered employment, regardless of the amount earned. CRS-10 The “Public Servant Retirement Protection Act” (PSRPA) The PSRPA would treat future non-covered workers differently from current or past non-covered workers when calculating Social Security retirement or disability benefits. Future Non-Covered Workers Applies a New, Proportional PIA Formula to Those Who First Begin Non-Covered Employment One Year after the Bill’s Enactment. The PSRPA legislation establishes a new PIA formula that takes into account the proportion of a worker’s career earnings attributable to Social Security-covered employment. First, to represent the PIA that a worker would receive if he or she had worked a full career in Social Security-covered employment, a PIA is calculated using the worker’s highest 35 years of earnings from both covered and non-covered employment. Second, this career-based PIA is multiplied by a ratio that reflects the portion of the worker’s lifetime earnings attributable to covered employment. This ratio is equal to the current-law AIME, which is based on the worker’s highest 35 years of Social Security-covered earnings, divided by an AIME based on the worker’s highest 35 years of earnings from both covered and non-covered employment. The new PIA is therefore equal to the portion of the career PIA that the worker is eligible to receive based on his or her Social Security-covered earnings. Thus, the new PIA formula for future non-covered workers is as follows: New PIA = PIA using covered X (AIME using highest 35 years covered earnings) and non-covered earnings (AIME using highest 35 years covered and noncovered earnings) Current and Past Non-Covered Workers Holds Harmless Individuals Who Already Work or Have Worked in Non-Covered Employment. Those individuals currently working in non-Social Security-covered employment, those who have worked in non-covered employment in the past, and those who begin work in non-covered employment within one-year of the bill’s enactment would not experience any reduction in benefits and could potentially experience a benefit increase. The PSRPA legislation retains the currentlaw WEP formula for these individuals as well as the guarantee that the reduction in benefits caused by the current-law WEP cannot exceed more than half of the pension based on non-covered work. However, if the PIA calculated under the proportional WEP formula would be higher than that provided under current-law, the worker would receive the higher PIA. Figure 2 demonstrates the basic relationship between the current-law WEP formula and the PSRPA proportional benefit formula for a scaled average-wage worker whose years of Social Security covered earnings occur at the end of his career. CRS-11 Figure 2. Current-Law WEP and PSRPA WEP, Scaled Average-Wage Earner $3,500 Benefit Level (Constant 2007 Dollars) $3,000 $2,500 Current Law WEP PSRPA WEP $2,000 $1,500 $1,000 $500 $0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings The straight line represents benefits under the PSRPA, while the line with bend points at 20 and 30 years of covered earnings and shifting slopes represents the current-law WEP. The area between these two lines represents the estimated change in benefits between current-law and the PSRPA. Most of the following analysis of the results deals with explaining the difference in the gaps for workers with varying levels of earnings and years of covered earnings. How Will the PSRPA Affect Benefits? ! Under the current-law WEP, benefits are driven by the number of “years of coverage,” while under the PSRPA benefits are driven by the value of covered earnings relative to overall earnings, regardless of the number of years spent accruing those covered earnings. ! While the current-law WEP formula provides no increase in the first PIA formula factor of 40% for those with between 10 and 20 years in covered employment, the PSRPA uses a 90% formula factor and thus would provide a higher percent increase in benefit levels for each year of covered earnings. ! Future non-covered workers who spend 30 years or more in Social Security covered employment would not be exempt from a reduced Social Security benefit as are workers under current-law. CRS-12 ! On the basis of estimates for future hypothetical workers using the PSPRA formula: — — — — Minimum-wage workers and low-wage workers would receive the greatest percent increase in Social Security benefits under the PSRPA relative to current-law, regardless of the number of years of covered earnings. Average-wage workers with up to 27 years of covered earnings would receive benefits greater than what they would receive under current law. High-wage workers with up to 23 years of covered earnings would receive benefits greater than what they would receive under current law. Maximum-wage workers would experience a decrease in Social Security benefits under the PSRPA relative to current-law, regardless of the number of years of covered earnings. The remainder of this report uses the Congressional Research Service (CRS) Social Security case-simulation model to analyze how the PSRPA would affect the Social Security benefits of hypothetical workers with various earnings levels who spend differing numbers of years working in Social Security-covered employment. In the case-simulation model, it is necessary to specify not only the number of years of covered employment, but also when those years occurred. Because we are relying on hypothetical earnings patterns for workers, in all of our examples higher earnings levels come towards the end of the worker’s career. Therefore, individuals whose years of covered earnings occur later in their career experience slightly higher benefit levels under the PSRPA than those individuals who have covered earnings earlier in their career. While the relative importance of the timing of covered earnings holds true for individuals with earnings histories that start low and increase throughout the career, it would not necessarily hold true for other earnings patterns. The appendix provides a series of tables with examples of how the PSRPA would affect future non-covered workers based on differences in earnings levels and years of Social Security covered earnings. For these examples, each worker’s covered earnings are assumed to fall towards the end of his or her career. The output for each scenario includes information on the PIA based on all earnings, the new PSRPA PIA, the current-law WEP PIA, and the percent increase or decrease under the PSRPA proposal compared to current-law. The main results based on these examples and a preliminary explanation of these results are summarized below. Earnings Levels. Figures 3, 4, 5 and 6 demonstrate the relationship between current-law and the PSRPA for minimum-wage workers, scaled low-wage workers, scaled high-wage workers and maximum-wage workers, respectively, who have covered earnings at the end of their careers.9 These figures illustrate features of the 9 The projected earnings histories for these workers are those used by the Social Security Administration to produce the Annual Trustees Report. It is assumed that they follow (continued...) CRS-13 current-law and the PSRPA WEP formulas, with respect to years of covered earnings, by earnings levels. In all cases, the WEP benefit level, under both currentlaw and the PSRPA, increases with years of covered earnings. However, the currentlaw WEP generally increases at a varying rate with years of covered earnings, whereas the PSRPA WEP increases at a constant rate.10 Also, the slope of both the current-law WEP and PSRPA WEP, with respect to years of coverage, increases as earnings increase (e.g., compare Figure 3 with Figure 4). These formula features account for the differences in benefits illustrated in subsequent figures, with respect to years of covered earnings and earnings levels. Given our assumed earnings histories, the PSRPA provides a strictly proportional benefit. However, the current-law WEP formula replaces a higher proportion of the AIME of higher-wage workers than lower-wage workers. Higherwage workers tend to have larger AIMEs, and a larger portion of their benefit is based on the 32% and 15% formula factors under the current-law WEP PIA. Lowerwage workers tend to have smaller AIMEs, and a larger portion of their benefit is based on the first PIA formula factor which can be as small as 40% under the currentlaw WEP. Furthermore, under the current-law WEP, minimum-wage earners do not have high enough earnings to qualify for a “year of coverage” under the WEP. Therefore, while their AIMEs increase with additional years of covered earnings, their WEP “years of coverage” do not and so the first PIA formula factor remains at 40%. 9 (...continued) typical lifetime earnings patterns that would produce a Social Security benefit equivalent to that of workers with career earnings of either: (1) a “low”wage (45% of a wage equal to Social Security’s “average wage series);” (2) an “average wage”(a wage equal to Social Security’s “average wage series);” (3) a “high” wage (160% of a wage equal to Social Security’s “average wage series);” or (4) the maximum wage creditable under Social Security. 10 This constant rate is primarily a function of the assumptions used to generate the hypothetical earners used in this analysis, particularly the long-term constant rate of growth in the national average wage. CRS-14 Figure 3. Current-Law WEP and PSRPA WEP, Minimum Wage Earner $3,500 Benefit Level (Constant 2007 Dollars) $3,000 Current LawWEP $2,500 PSRPA WEP $2,000 $1,500 $1,000 $500 $0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings Figure 4. Current-Law WEP and PSRPA WEP, Scaled Low-Wage Earner $3,500 Benefit Level (Constant 2007 Dollars) $3,000 Current Law WEP $2,500 PSRPA WEP $2,000 $1,500 $1,000 $500 $0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings CRS-15 The impact of this “year of coverage” requirement can be seen by comparing Figure 3 (minimum-wage worker) with Figure 2 (scaled average-wage worker). The pattern of current-law benefits by years of covered earnings for the minimum-wage worker does not exhibit the typical bend-points one expects from the WEP formula because the first PIA formula factor never rises with additional years of covered earnings. This same pattern holds true for scaled low-wage workers (Figure 4), but to a lesser degree. Scaled low-wage workers earn high enough wages in some years to qualify for a “year of coverage,” but even then the first PIA formula factor only reaches 60%. Thus, when the new proportional PIA is used, and the regular PIA formula using the 90% first formula factor is put in place, minimum-wage and scaled low-wage workers experience the greatest percent increase in benefits. Scaled average-wage, scaled high-wage, and maximum-wage earners all have high enough earnings in each year of covered earnings to qualify for a ‘year of coverage’ under the WEP and thus their first PIA formula factors rise every year between 20 and 30 years of covered earnings (Figure 2, Figure 5 and Figure 6). The difference in the percentage increase or decrease by earnings level is highlighted in Figure 7. Figure 5. Current-Law WEP and PSRPA WEP, Scaled High-Wage Earner $3,500 Benefit Level (Constant 2007 Dollars) $3,000 Current Law WEP PSRPA WEP $2,500 $2,000 $1,500 $1,000 $500 $0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings CRS-16 Figure 6. Current-Law WEP and PSRPA WEP, Maximum-Wage Earner Benefit Level (Constant 2007 Dollars) $4,000 $3,500 Current Law WEP $3,000 PSRPA WEP $2,500 $2,000 $1,500 $1,000 $500 $0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings Figure 7. Percent Change in WEP Benefit Under PSRPA Compared to Current Law, by Earnings Level 120% Percent Change in WEP Benefit 100% Minimum wage worker Scaled low-wage worker Scaled average-wage worker Scaled high-wage worker Maximum wage worker 80% 60% 40% 20% 0% -20% -40% 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Years of Covered Earnings CRS-17 Number of Years of Covered Earnings. Under the PSRPA, the key determinant of the new proportional benefit amount is the percentage of the highest 35 years of covered and non-covered earnings that can be attributed to covered work — the higher the value of covered earnings to career earnings, the larger the benefit under the PSRPA. In order to separate out the effect of the number of years of covered earnings, we examined workers with identical earnings histories, but with different numbers of years of covered earnings. For example, Figure 8 highlights how the percent change in benefit level for a scaled average-wage worker who has covered earnings at the end of his career varies by the number of years of coverage.11 As seen in Figure 8, the average-wage worker who has between 10 and 20 years of covered earnings experiences a large percent increase in Social Security benefit level compared to the current-law WEP. The current-law WEP formula limits the first PIA formula factor to 40% (instead of 90% for regular workers) no matter how many additional “years of coverage” a worker earns between 10 and 20. With the PSRPA PIA, workers would receive an increase in benefit proportional to the increase in their earnings for each year of additional covered earnings. Figure 8. Percent Change in WEP Benefit Under PSRPA Compared to Current Law, by Years of Covered Earnings Percent Change in WEP Benefit 30% 25% 20% Scaled Average-Wage Worker 15% 10% 5% 0% 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 -5% -10% Years of Covered Earnings For those workers with 21 to 29 years of covered earnings, the percent increase in benefit under the PSRPA declines for each year of covered earnings gained. Again, this pattern is due to the current-law WEP formula. Under the current-law WEP, the first formula factor in the PIA increases by 5% for each additional “year of coverage” at the same time the current-law AIME increases as a result of 11 For scaled average-wage workers, a year of covered earnings equals a “year of coverage” under the current-law WEP. CRS-18 additional covered earnings. For the average-wage worker, the percent increase in the covered AIME per year of coverage (the base of growth for the PSRPA) doesn’t keep pace with the 5% increase in the first PIA formula factor (the base of growth for the current-law WEP). Thus, for the average-wage worker, the current-law WEP provides a higher benefit than the PSRPA would once covered earnings exceed 27.5 years. Relative to current-law, individuals who work 30 to 34 years of covered earnings would experience the largest percent decrease in their Social Security benefits. Under current-law, individuals who work 30 or more years in covered employment are exempt from any reduction in benefits under the WEP because their benefits are calculated using the regular PIA formula with the 90% formula factor. Under the new PSRPA, these individuals would now be affected by the proportional WEP PIA. Individuals who work for 35 years in covered employment at the end of their careers would experience neither an increase nor a decrease in benefit levels. Under current-law these individuals would be exempt from the WEP PIA formula. Under the PSRPA PIA formula, these individuals are still exempt from the proportional WEP reduction because their AIME based on covered work is equal to the AIME based on all earnings. Because the AIME takes the highest 35 years of earnings, and in both cases the highest 35 years are covered earnings from the end of the career, the AIMEs are equal and the 35 year covered worker receives a PIA identical to what he would have received under the current-law WEP PIA. Assumptions and Methodology The results presented in this report were calculated using the intermediate (Alternative II) assumptions of the 2007 Social Security Trustees Report. All dollar figures are in constant 2007 dollars. In each scenario, the worker is born in 1984, begins work at age 21 in 2005, and retires at the full retirement age of 67 in 2051. As a result, our example worker has a career of 46 years, split between Social Security covered and non-covered work. We provide estimates for minimum-wage workers, scaled low-wage workers, scaled average-wage workers, scaled high-wage workers and maximum-wage workers, as defined by the Social Security Office of the Chief Actuary.12 It is assumed that these workers follow typical lifetime earnings patterns that would produce a Social Security benefit equivalent to that of workers with career earnings of either: (1) a “low”wage (45% of a wage equal to Social Security’s “average wage series);” (2) an “average wage”(a wage equal to Social Security’s “average wage series);” (3) a “high” wage (160% of a wage equal to Social Security’s “average wage series);” or (4) the maximum wage creditable under Social 12 Social Security Administration, Office of the Actuary, Internal Rates of Return Under the OASDI Program for Hypothetical Workers, Actuarial Note no. 144, June 2001. The pattern in these “scaled” earnings histories shows relatively low earnings at the beginning of the career, fairly rapid growth through the middle of the career, and a gradual tapering off of earnings at the end of the career. CRS-19 Security. The scenarios provided show individuals with between 10 and 35 years of covered earnings, with the remaining earnings out of the 46-year career being uncovered. These scenarios are for illustration only and are not meant to fully represent every possible scenario that actual workers may experience. For example, by relying on stylized workers, we have assumed no gaps in employment. Furthermore, the CRS case-simulation model does not contain information on the estimated level of non-covered pension each type of worker could be expected to receive upon retirement. Therefore, we are unable to model the provision of the current-law WEP that would limit the reduction in Social Security benefits to 50% of the non-covered pension amount. The output for each scenario includes information on the PIA based on all earnings, the PSRPA PIA, the current-law WEP PIA, and the percent increase or decrease under the PSRPA compared to current-law. CRS-20 Appendix: Benefit Amounts Under Current-Law and PSRPA by Earnings Level and Years of Social Security Covered Earnings Table 5. Minimum-Wage Worker (All benefit amounts in constant 2007 dollars) Years of Covered Earnings 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 PIA Based on All Earnings 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 1,039.43 Current-Law WEP-PIA 158.47 173.39 188.01 202.34 217.26 231.88 246.21 261.13 275.45 290.07 305.00 319.32 333.94 348.87 363.19 377.81 392.44 407.06 421.68 434.51 446.15 457.79 469.43 481.07 492.71 504.65 PSRPA WEP PIA 313.65 342.60 371.55 400.20 429.14 458.09 487.04 515.99 544.64 573.58 602.53 631.18 660.13 689.37 718.02 746.97 775.92 804.57 833.52 862.46 891.11 920.06 949.01 977.96 1,006.61 1,035.85 Percent Change in WEP Benefit 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 100% 101% 102% 103% 104% 105% Source: Congressional Research Service (CRS) calculations. Notes: Assumes a worker is born in 1984, begins work at age 21 in 2005, and retires at the full retirement age of 67 in 2051. This scenario is for illustration only and is not meant to fully represent every possible scenario that actual workers may experience. For example, by relying on stylized workers, we have assumed no gaps in employment. This scenario focuses on workers with between 10 and 35 years of covered earnings because a worker generally needs 40 quarters of coverage (10 years) to qualify for Social Security benefits and the highest 35 years of earnings are generally used in calculating Social Security benefits. These estimates do not include the current-law WEP provision that would limit the reduction in Social Security benefits to 50% of the non-covered pension amount. CRS-21 Table 6. Scaled Low-Wage Worker (All benefit amounts in constant 2007 dollars) Years of Covered Earnings PIA Based on All Earnings Current-Law WEP PIA PSRPA WEP PIA Percent Change in WEP Benefit 10 1,317.87 211.59 319.02 51% 11 1,317.87 236.36 356.62 51% 12 1,317.87 262.02 395.12 51% 13 1,317.87 288.28 435.11 51% 14 1,317.87 315.14 475.40 51% 15 1,317.87 342.30 516.28 51% 16 1,317.87 369.76 557.47 51% 17 1,317.87 397.21 599.25 51% 18 1,317.87 425.26 641.33 51% 19 1,317.87 447.65 683.11 53% 20 1,317.87 469.73 724.89 54% 21 1,317.87 492.11 766.67 56% 22 1,317.87 514.20 808.15 57% 23 1,317.87 535.98 849.33 58% 24 1,317.87 557.47 890.22 60% 25 1,317.87 578.96 930.51 61% 26 1,317.87 600.14 970.79 62% 27 1,317.87 621.03 1,010.19 63% 28 1,317.87 641.92 1,049.28 63% 29 1,317.87 662.52 1,088.08 64% 30 1,317.87 682.81 1,126.28 65% 31 1,317.87 756.22 1,163.88 54% 32 1,317.87 829.04 1,200.88 45% 33 1,317.87 848.44 1,237.29 46% 34 1,317.87 867.24 1,273.10 47% 35 1,317.87 886.04 1,308.32 48% Source: Congressional Research Service (CRS) calculations. Notes: Assumes a worker is born in 1984, begins work at age 21 in 2005, and retires at the full retirement age of 67 in 2051. It is assumed that the “low” wage worker follows a typical lifetime earnings pattern that would produce a Social Security benefit equivalent to that of workers with career earnings equal to 45% of Social Security’s “average wage” series. This scenario is for illustration only and is not meant to fully represent every possible scenario that actual workers may experience. For example, by relying on stylized workers, we have assumed no gaps in employment. This scenario focuses on workers with between 10 and 35 years of covered earnings because a worker generally needs 40 quarters of coverage (10 years) to qualify for Social Security benefits and the highest 35 years of earnings are generally used in calculating Social Security benefits. These estimates do not include the current-law WEP provision that would limit the reduction in Social Security benefits to 50% of the non-covered pension amount. CRS-22 Table 7. Scaled Average-Wage Worker (All benefit amounts in constant 2007 dollars) Years of Covered Earnings PIA Based on All Earnings Current-Law WEP PIA PSRPA WEP PIA Percent Change in WEP Benefit 10 2,171.68 461.37 526.13 14% 11 2,171.68 505.54 587.61 16% 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 2,171.68 551.20 598.05 645.51 693.85 742.49 791.74 841.28 890.52 939.76 1,042.42 1,144.48 1,246.54 1,347.71 1,448.88 1,549.45 1,649.42 1,748.80 1,847.88 1,946.06 1,990.53 2,034.10 2,077.08 2,119.15 2,160.64 651.47 717.13 783.68 851.12 919.17 987.80 1,057.04 1,125.98 1,194.92 1,263.85 1,332.19 1,399.94 1,467.08 1,533.93 1,599.89 1,665.24 1,729.70 1,793.27 1,856.24 1,918.31 1,979.49 2,039.47 2,098.56 2,156.16 18% 20% 21% 23% 24% 25% 26% 26% 27% 21% 16% 12% 9% 6% 3% 1% -1% -3% -5% -4% -3% -2% -1% -0% Source: Congressional Research Service (CRS) calculations. Notes: Assumes a worker is born in 1984, begins work at age 21 in 2005, and retires at the full retirement age of 67 in 2051. It is assumed that the “average” wage worker follows a typical lifetime earnings pattern that would produce a Social Security benefit equivalent to that of workers with career earnings equal to Social Security’s “average wage” series. This scenario is for illustration only and is not meant to fully represent every possible scenario that actual workers may experience. For example, by relying on stylized workers, we have assumed no gaps in employment. This scenario focuses on workers with between 10 and 35 years of covered earnings because a worker generally needs 40 quarters of coverage (10 years) to qualify for Social Security benefits and the highest 35 years of earnings are generally used in calculating Social Security benefits. These estimates do not include the current-law WEP provision that would limit the reduction in Social Security benefits to 50% of the non-covered pension amount. CRS-23 Table 8. Scaled High-Wage Worker (All benefit amounts in constant 2007 dollars) Years of Covered Earnings PIA Based on All Earnings Current-Law WEP PIA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 2,876.57 686.99 757.42 830.83 905.74 981.84 1,058.83 1,137.02 1,215.51 1,294.59 1,373.38 1,452.46 1,584.37 1,715.97 1,846.99 1,977.10 2,106.62 2,235.54 2,363.57 2,490.70 2,616.94 2,707.36 2,740.79 2,773.61 2,805.54 2,837.18 2,868.21 PSRPA WEP PIA 696.54 778.31 863.06 949.90 1,037.94 1,127.47 1,217.60 1,308.62 1,400.24 1,491.56 1,582.88 1,673.90 1,764.32 1,854.45 1,943.38 2,031.71 2,119.15 2,205.40 2,291.05 2,375.51 2,458.77 2,540.84 2,621.71 2,701.39 2,779.28 2,855.98 Percent Change in WEP Benefit 1% 3% 4% 5% 6% 6% 7% 8% 8% 9% 9% 6% 3% 0% -2% -4% -5% -7% -8% -9% -9% -7% -5% -4% -2% 0% Source: Congressional Research Service (CRS) calculations. Notes: Assumes a worker is born in 1984, begins work at age 21 in 2005, and retires at the full retirement age of 67 in 2051. It is assumed that the “high” wage worker follows a typical lifetime earnings pattern that would produce a Social Security benefit equivalent to that of workers with career earnings equal to 160% of Social Security’s “average wage” series. This scenario is for illustration only and is not meant to fully represent every possible scenario that actual workers may experience. For example, by relying on stylized workers, we have assumed no gaps in employment. This scenario focuses on workers with between 10 and 35 years of covered earnings because a worker generally needs 40 quarters of coverage (10 years) to qualify for Social Security benefits and the highest 35 years of earnings are generally used in calculating Social Security benefits. These estimates do not include the current-law WEP provision that would limit the reduction in Social Security benefits to 50% of the non-covered pension amount. CRS-24 Table 9. Maximum-Wage Worker (All benefit amounts in constant 2007 dollars) Years of Covered Earnings PIA Based on All Earnings Current-Law WEP PIA PSRPA WEP PIA Percent Change in WEP Benefit 10 3,529.84 1,260.57 1,069.87 -15% 11 3,529.84 1,368.90 1,168.06 -15% 12 3,529.84 1,476.93 1,266.54 -14% 13 3,529.84 1,584.96 1,365.02 -14% 14 3,529.84 1,693.00 1,463.20 -14% 15 3,529.84 1,801.03 1,561.69 -13% 16 3,529.84 1,909.06 1,659.87 -13% 17 3,529.84 2,017.39 1,758.65 -13% 18 3,529.84 2,125.42 1,856.83 -13% 19 3,529.84 2,185.41 1,955.32 -11% 20 3,529.84 2,236.14 2,053.50 -8% 21 3,529.84 2,340.29 2,151.98 -8% 22 3,529.84 2,444.15 2,250.46 -8% 23 3,529.84 2,548.30 2,348.65 -8% 24 3,529.84 2,652.15 2,447.13 -8% 25 3,529.84 2,756.30 2,545.61 -8% 26 3,529.84 2,860.16 2,643.80 -8% 27 3,529.84 2,964.31 2,742.28 -7% 28 3,529.84 3,068.16 2,840.46 -7% 29 3,529.84 3,172.32 2,938.94 -7% 30 3,529.84 3,276.17 3,037.42 -7% 31 3,529.84 3,326.90 3,135.91 -6% 32 3,529.84 3,377.64 3,234.09 -4% 33 3,529.84 3,428.37 3,332.57 -3% 34 3,529.84 3,479.10 3,431.05 -1% 35 3,529.84 3,529.84 3,529.54 0% Source: Congressional Research Service (CRS) calculations. Notes: Assumes a worker is born in 1984, begins work at age 21 in 2005, and retires at the full retirement age of 67 in 2051. It is assumed that the “maximum” wage worker follows a typical lifetime earnings pattern that would produce a Social Security benefit equivalent to that of workers with career earnings equal to the maximum wage creditable under Social Security. This scenario is for illustration only and is not meant to fully represent every possible scenario that actual workers may experience. For example, by relying on stylized workers, we have assumed no gaps in employment. This scenario focuses on workers with between 10 and 35 years of covered earnings because a worker generally needs 40 quarters of coverage (10 years) to qualify for Social Security benefits and the highest 35 years of earnings are generally used in calculating Social Security benefits. These estimates do not include the current-law WEP provision that would limit the reduction in Social Security benefits to 50% of the non-covered pension amount.