How Social Security works or doesn’t work for public school employees is always a big question. One reason is the tremendous misunderstanding regarding the offsetting provisions and the rights to spousal benefits. We are providing in this newsletter what we feel is one of the best analyses of the subject. The word “some” is key in the heading of this fact sheet. Most teachers and many local, state, and federal government employees pay into Social Security just like almost everyone else. In fact, about 70 percent of all local, state and federal government jobs (including teachers) are covered by Social Security. However, teachers in some states as well as some local, state and federal government employees do not pay Social Security taxes. If you will get a pension from a job where your employer does not withhold Social Security taxes, but you have paid enough Social Security taxes in other jobs to qualify for a Social Security retirement benefit (i.e., you have your 40 quarters), that benefit likely will be reduced because of your government pension. The law requiring this reduction is called the Windfall Elimination Provision. The same government or teacher’s pension will offset, and usually eliminate, any Social Security benefits you might be due on a spouse’s Social Security record. The law requiring this is called the Government Pension Offset. This fact sheet explains both laws.

Windfall Elimination Provision

Note: This section explains how your own Social Security benefit might be reduced. This provision reduces your Social Security benefit – generally by about one half. In other words, if the computerized estimate you get from the Social Security Administration says you are due $400 per month in a retirement pension when you reach Social Security’s “full retirement age,” you can more likely expect to get about $200. The key to understanding this provision is to realize that the word “social” in Social Security means something. Unlike private and other public sector pension plans, there are social goals built into the Social Security program. One of those goals is to raise the standard of living of lower income workers in retirement. This is accomplished through a benefit formula that is designed to give lower paid workers a better deal than their more highly-paid counterparts. Very low-paid workers could get a Social Security retirement benefit that represents up to 90 percent of their earnings. This percentage is known as a “replacement rate.” In other words, the Social Security benefits paid to low income workers are intended to replace 90 percent of their pre-retirement earnings. People with average incomes (the middle class) generally get a 40 percent replacement rate. Higher income people get a rate around 30 percent. The problem is that government employees and others who spend the bulk of their working lives not paying into Social Security are automatically treated as low-income people by the Social Security Administration’s computers. That’s because there are “zeros” on their Social Security earnings record for every year they spent in their non-Social Security job. SSA’s records won’t show they were actually working at the other job and earning another pension. Instead, their Social Security earnings record simply shows gaps in their work history. So when figuring their Social Security retirement benefit, SSA’s computers automatically use the formula intended to compensate a lower income person. But government employees generally can be classified as people with average incomes, so they should get the same Social Security replacement rate paid to all middle class workers. That’s why a modified formula is used to refigure their benefits and give them the proper replacement rate. If you’re a teacher or government employee impacted by this law, that modified formula takes you from the 90 percent (poor person’s) replacement rate to the 40 percent (middle class person’s) replacement rate, thus reducing benefits by about 50 percent. But if you get a low government or teacher’s pension, there is a rule that says the reduction in your Social Security benefit cannot be more than one-half of that pension. An exception is if you have more than 30 years of “substantial” Social Security earnings. If you have 30 or more years of substantial Social Security earnings, the windfall provision won’t apply and your benefit will not be reduced. A chart giving a year-by-year breakdown of what the government considers substantial earnings is available at the SSA website. If you have between 20 and 29 years of substantial earnings, your Social Security benefit will be only partially reduced. Instead of being cut in half, it will be reduced anywhere from about 5 to 45 percent, depending on the number of years of substantial earnings on your record. The more years of earnings, the less the reduction will be. Call SSA at 1-800-772-1213 to learn the reduction that applies to you. There are other exceptions that apply to railroad workers, some employees of non-profit organizations, and people who worked in non-Social Security jobs before 1957. For a complete list of exceptions, go to the SSA website. Note: if you are affected by the Windfall Elimination Provision, the retirement estimates in the Social Security Statement SSA sent you are wrong. To find out how your Social Security benefit will be impacted by WEP, you can use the WEP calculator at SSA’s website at www.socialsecurity.gov or you can call them at 800-772-1213.

Government Pension Offset

Note: This section explains how your government pension may offset any benefits you are due on a spouse’s Social Security record. If you will get a pension from a job not covered by Social Security, that pension will offset any benefits you might be due on your spouse’s Social Security record. SSA must deduct an amount equal to two-thirds of your government pension from any wife’s, husband’s, widow’s or widower’s benefits you might be due from Social Security. Because government pensions are often substantially higher than spouse’s benefits paid under Social Security, this rule generally means you will not qualify for any benefits on your spouse’s Social Security record.

Why the offset?

Benefits that Social Security pays to wives, husbands, widows and widowers are “dependent’s” benefits. These benefits were established in the 1930s to compensate spouses who stayed home to raise a family and who were financially dependent on the working spouse. But as more and more couples both worked, they each earned their own Social Security retirement benefits. The law has always required SSA to offset a Social Security retirement benefit against any dependent’s benefits. In other words, if a woman worked and earned her own $800 monthly Social Security retirement benefit, but she was also due a $500 wife’s benefit on her husband’s Social Security record, SSA could not pay that wife’s benefit because her own Social Security benefit offset it. But if that same woman was a government employee who did not pay into Social Security, and who earned an $800 government or teacher’s pension, there was no offset and SSA was required to pay her a full wife’s benefit in addition to her government pension. Note: if you are affected by the Windfall Elimination Provision, the retirement estimates in the Social Security Statement SSA sent you are wrong. To find out how your Social Security benefit will be impacted by WEP, you can use the WEP calculator at SSA’s website at www.socialsecurity.gov or you can call them at 800-772-1213.

Exceptions

This rule affects most government workers who do not pay into Social Security. But there are some exceptions that apply in very rare situations. For a list of those exceptions, go to the SSA Website. Note: This offset impacts only the spouse’s benefit you might be due on your husband or wife’s Social Security record. It does NOT impact his or her benefit. In other words, even though you are due a teacher’s pension or government pension, your spouse will get his or her full Social Security retirement benefit. It is your potential spousal benefit on your husband or wife’s Social Security record that is impacted by the Government Pension Offset.