WEP, in Social Security parlance, is the Windfall Elimination Provision. So, if that’s all you wanted to know, you’re good to go.
You wanted more though, right? Okay, here we go:
WEP is the provision of the Social Security rules that provides for reduction of your Social Security benefit when you are receiving a pension from a job that was not covered by Social Security. Usually these jobs are government-related, including state and federal government employees, teachers, and the like. In addition, pensions from work done in other countries would also fit into this category, as long as the work was not covered by US Social Security.
How it Works
When your Social Security benefit is calculated, if you’ll recall from this earlier article on benefit calculation, your Average Indexed Monthly Earnings (AIME) factor is divided into three portions, bounded by bend points. The first bend point is multiplied by 90% – but if WEP applies, the 90% multiplier is reduced by as much as 50%. The reduction amount can be reduced or eliminated by two additional factors – the amount of your pension from non-covered work, and the number of years of substantial earnings you’ve accrued in your career in jobs covered by Social Security.
If your benefit is fully impacted by WEP, this means that for 2013 your Primary Insurance Amount (PIA) will be reduced by 50% of the first bend point, which is $791 – so the maximum reduction via WEP in 2013 is $395.50.
The reductions apply to your own PIA which then applies to your own retirement benefit, as well as to any beneficiary or spousal benefits that are calculated on your PIA. If you’re receiving a Spousal or Survivor Benefit based on someone else’s record, WEP does not apply. Additionally, if the pension you’re receiving is from someone else’s work – as in, if you’re receiving a survivor’s pension based upon your spouse’s government-related job – WEP does not apply to your Social Security benefits.
Now let’s review the ways that the WEP reduction can be reduced or eliminated from the maximum 50%.
When you have worked in a Social Security-covered job for more than 20 years and the earnings are considered “substantial” by Social Security definition, these earnings can begin to reduce the WEP reduction factor from the maximum. For each year greater than 20 that you’ve had substantial earnings, the 50% factor is reduced by 5%. So if you have had substantial earnings for 30 or more years, the WEP reduction factor is completely eliminated.
Amount of Your non-SS Pension
The other way that WEP impact can be reduced from the maximum is based on the amount of your pension from the non-Social Security-covered job. The total dollar amount of WEP reduction is limited to 50% of the total dollars being received from the non-SS-covered job. So if your pension from this non-SS-covered job is less than $791 (in 2013), then the reduction for WEP will not be at the maximum.
Let’s say your pension from non-SS-covered work is $400 per month. As a result of the maximum cap, your Primary Insurance Amount will only be reduced by $200 (50% of your pension amount).