Industry News

On February 10, 2020, the Congressional Research Service (CRS) published its updated report, Social Security: The Windfall Elimination Provision (WEP).  The WEP affects Social Security benefits paid to individuals who earn Social Security benefits from Social Security covered employment, but who also earn pension benefits from state or local government employment not covered by Social Security.  In these cases, Social Security benefits are lowered by the WEP. 

Social Security benefits are designed to replace a larger percent of pre-retirement income for lower-paid workers than for higher-paid workers.  This is done by: 1) calculating an employee’s average indexed monthly earnings (AIME) from employment covered by Social Security; and 2) calculating the employee’s primary insurance amount (PIA) using a formula that applies a higher replacement percentage to lower earnings than to higher earnings. 

In 2020, the PIA formula is:

• 90% for the first $960 of AIME, plus
• 32% of AIME over $960 and through $5,785 (if any), plus
• 15% of AIME over $5,785 (if any). 

Before the WEP was established, for those who split their careers between covered and non-covered Social Security employment, the PIA formula resulted in a higher proportion of covered earnings being subject to the 90% rate.  This resulted in what some perceived as a “windfall.”  In 1983, Congress passed the WEP to eliminate this perceived advantage by lowering the 90% rate to 40% for those subject to the WEP. 

As of December 2019, the Social Security Administration data indicated that about 1.9 million individuals (or 3% of all Social Security beneficiaries) were affected by the WEP, most of whom (94%) were retired workers. 

The report is available here.