Windfall Elimination Provision (WEP)


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Contact Your Representatives to sign the Discharge Petition

Our WEP team needs your help to eliminate WEP. HR.82 has 305 co-sponsors, more than enough to pass it, but it’s not being put up for a vote in the House.

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Background information is on our WEP FAQ page.


WEP FAQs


What is Windfall Elimination Provision (WEP)?

WEP is a statutory provision in United States law which affects benefits paid by the Social Security Administra- tion under Title II of the Social Security Act.[iii] As seen from above, 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 SS. 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 SS.[iv]

WEP applies to most people who receive both a pension from noncovered work (including certain foreign pensions) and SS benefits based on fewer than 30 years of substantial earnings in covered employment or self-employment. In 2022, the amount of substantial earnings in covered employment or self-employment needed for a year of coverage is $27,300. This amount is adjusted annually by the growth in average wages in the economy, provided a cost-of-living adjustment is payable. The WEP affects retired or disabled worker beneficiaries and their eligible dependents. However, it does not affect survivor beneficiaries.


When was WEP established?

On April 20, 1983, President Reagan signed into law H.R. 1900 (Public Law 98-21), the Social Security Amend-ments of 1983. One amendment designed to shore up the financing of SS was the establishment of WEP. Its purpose was to remove an unintended advantage or “windfall” that the regular SS benefit formula provided to workers who also had pensions from non-covered employment (i.e., employment not covered by SS). Congress wanted to eliminate an unintended windfall that federal retirees had been enjoying for years.

This formula was intended to help workers who spent their careers in low paying jobs, by providing them with a benefit that is relatively higher in relation to their career-average earnings in covered employment than the benefit that is provided for workers with high career-average earnings.[i] The formula used to compute SS benefits included factors that ensure lower-paid workers get a higher per-centage of return than their more well-to-do counterparts. For example, lower-paid workers got a SS benefit that equals up to 90 percent of their pre-retirement earnings. Highly paid workers received rates of return that were considerably less.

The problem was that the formula could not differentiate between those who worked in low-paid jobs throughout their careers and other workers who appeared to have been low paid because they worked many years in jobs not covered by SS. Thus, under the old law, workers who were employed for only a portion of their careers in jobs covered by SS - 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 SS benefits were based.  

Before the law was changed in 1983, employees who spent time in jobs not covered by SS had their benefits computed as if they were long-term, low-wage workers. Thus, they received the advantage of the higher percentage of SS benefits in addition to their other pension. The WEP was intended to remove this advantage or windfall[ii]  - the "windfall" of social security benefits received by beneficiaries who also receive a pension based on work not covered by SS. Again, the windfall refers to the subsidization of the primary insurance amounts (PIA) (or worker’s basic benefits) for beneficiaries with lower incomes throughout life. Prior to WEP, beneficiaries who paid little into SS but were paid well outside of the system were given this subsidy.


What are the advantages of WEP?

1. Social Security is financed.

2. WEP places affected workers in approximately the same position they would have been in had all their earnings been covered by SS.

3. WEP promises that workers will get their fair share of benefits when they retire.[v]


What are the disadvantages of WEP?

Regardless of President Regan’s claim that this bill is a “monument to the spirit of compassion and commitment that unites us as people”, there are disadvantages:

1. Beneficiaries who have paid into SS do not receive the full benefits but reduced benefits. These do not represent their full SS contributions over the years.

2. Beneficiaries believe workers (i.e., themselves) do not get their fair share of benefits when they retire. (For example, the penalty imposed on the overseas retiree is disproportionately burdensome because of the lower cap.)

3. Some beneficiaries only learn of WEP after they have retired, and the reduced benefits affect substantially their financial standing in later years.

4. The problem WEP was meant to resolve didn't consider in a fair and equitable way the impact on overseas retirees.


How many Americans Abroad are affected by WEP?

According to the Congressional Research Service, there are 109,911[vi] individuals who live outside of the US and in foreign countries who are affected by WEP in 2022.


Legislative Remedies

HR 82/S1302 Social Security Fairness Act of 2021 is the “gold standard for repeal” of WEP.

HR 5723/23071Social Security 2100: A Sacred Trust, HR 2337 Public Servants Protection and Fairness Act of 2021 and HR 4788 Wellbeing for Every Public Servant Act of 2021 modify the application of WEP. These all are limited in scope. The DA Seniors Caucus want the repeal of WEP and support wholeheartedly HR 82.


Sources:

[i] Title II “establishes the Federal Reserve account used to pay for Social Security benefits and gives the Secretary of the Treasury the authority to invest excess reserves from the account.”

[ii] See: Windfall Elimination Provision (ssa.gov) and Congressional Research Service (2022) Social Security: The Windfall Elimination Provision (WEP) March 7, 2022, Washington DC: CRS.

[iii] IF10203 (congress.gov)

[iv] IF10203 (congress.gov)

[v] See: Remarks on Signing the Social Security Amendments of 1983 | Ronald Reagan (reaganlibrary.gov)


Disclaimer

Please note that Democrats Abroad does not offer financial advice to individuals. The information below is listed for reference purposes only.  Please contact your personal financial advisor if you have questions.

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