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Windfall Elimination Provision May Impact Spousal Benefits but not Survivor Benefits

danny and sandyWhen your Social Security retirement benefit is subject to the Windfall Elimination Provision (WEP), you’re likely painfully aware of the reduction to your own benefit by this provision. What you may not be aware of is that the effect goes beyond your own benefit – your spouse’s and other dependents’ benefits are also impacted by this provision. However, the impact of WEP does not continue after your death. 

Spousal Benefit impacted by WEP

The Windfall Elimination Provision results in a recalculation of the Primary Insurance Amount, or PIA, of the individual who is receiving a pension based upon earnings that were not subject to Social Security taxation.  Since the PIA is recalculated and reduced by the WEP, all benefits based on that PIA are likewise reduced.

This means that even though the WEP does not directly impact Spousal Benefits of an individual, the Spousal Benefit is still reduced since the PIA of the other spouse is impacted.  This impact occurs regardless of whether the person receiving the Spousal Benefit is receiving a pension based on earnings that were not subject to Social Security taxation.

For example, Danny was a government employee for many years, and he also had a side job where he paid Social Security tax on his earnings.  He is eligible for a Social Security benefit of $1,200 (before WEP impact) in addition to his government pension of $2,000 (monthly figures).

Danny’s wife Sandy did not work outside the home.  When Danny files for his own Social Security Benefit, Sandy is looking forward to receiving a Spousal Benefit based on Danny’s record.  But Sandy will be surprised to find out that the amount of her Spousal Benefit will not be $600 per month (50% of Danny’s projected $1,200), but rather it will only be $396 per month.  This is due to the fact that Danny’s PIA of $1,200 is reduced by WEP at the rate of $408/month (for 2014).  Danny’s recalculated PIA therefore becomes $792 ($1,200 minus $408), and 50% of that figure is $396. (Both Danny and Sandy are at Full Retirement Age when benefits are applied for).

Survivor Benefits not impacted by WEP

The good news is that the impact of WEP does not reach beyond the grave.  After the primary numberholder (Danny from our example above) has passed away, the pension based on the earnings not subject to Social Security taxes ceases to be paid to Danny.  Even if Sandy receives a survivor pension from Danny’s government work, WEP will no longer impact any Social Security benefits that Sandy receives based upon Danny’s record.  Danny’s PIA is restored to the former level, and the Survivor Benefit that Sandy is eligible to receive will be based upon the restored, $1,200/month PIA.

Notes – If Sandy also had earnings from government employment not subject to Social Security taxation, these could reduce both her Spousal Benefit and the Survivor Benefit due to the Government Pension Offset (GPO)

In addition, if Danny’s side-job earnings had been substantial in more than 20 years, the impact of the WEP would be reduced; eliminated if the substantial earnings occurred in 30 or more years.

49 Comments

  1. Barb says:

    Hi Jim,

    I have 27 years of substantial years. I have 6 years of working for a state university where I have contributed to the Self Managed Plan under SURS. Is there any way I can avoid the WEP reduction with the Self Managed Plan by taking the lump sum distribution instead of the annuity?

    Thanks,
    Barb

    1. jblankenship says:

      The only way to avoid WEP altogether if you don’t have 30 years of substantial earnings is to distribute the pension plan before you’re eligible for it. Unfortunately most plans will not allow this. If you’re in Illinois (guessing based on the terms you’ve used) then I’m sure that the SURS plan will not allow a distribution before you’re eligible.

  2. Judy Durland says:

    I worked for a political subdivision if the state which did my pay social security but contributed to a 401a which does not have a guaranteed payout based on years of service and salary, etc. rather it is subject to market fluctuations like a 401k. Social security tells me I am subject to WEP and GPO. I have 15 years of substantial earnings in addition to the government job. And many years of being a spouse raising children.
    Is the amount to report on my 401a, the amount that was transferred to a 401k, the amount of my contributions and the employers or the balance, and if so as of which date? The date of transfer to a 401k, last day of employment?
    Does the WEP maximum offset $ amount apply in the year I turned 62, ( I saw a chart regarding this) if I plan on drawing social security at age 65, full retirement is 66 years for me.
    Also, if my husband dies before me, can I change at his death and draw 100% of his social security or will the GPO apply then also? Thank you for your help!

    1. jblankenship says:

      I don’t understand: you say that the earnings were subject to Social Security tax, but that WEP still applies? That doesn’t sound right to me.

      Assuming that you meant to say that Social Security tax was not paid on the earnings, you’ll need to work with SSA to determine the figure from your plan that will be applicable as WEP impacting. The year of WEP maximum is the year you reach age 62.

      If WEP applies and the job is a government job, GPO will apply to the benefits of others (your spousal benefit or survivor benefit) as well.

      Best wishes to you –

  3. GeliTest says:

    I have 10 substantial earning years in corporate jobs where I paid into SS (have my 40 quarters). The next 11 years I was raising my children. I became very passionate about children and education and now I am considering to change careers and become a teacher in Texas. I understand my SS future benefits will be subject to WEP and GOP (extremely disappointing). So discouraged, feel like a dream is being shattered and now I am not sure if getting a teaching certificate at this point in life would make sense causing my future ss benefits to be reduced.

    ~Do you have any thoughts/advise on that? I have about 21 yrs till full retirement age, but was hoping not to have to work that long.

    ~I am afraid I would have to teach a lot of years to end up with a decent monthly pension upon retirement from the school system. How would I find out what a break-even year would be?

    ~ Another question: Would working for a school district that participates in both SS and Teacher’s Retirement Pension avoid WEP & GP?

    ~ Is participating in a 457b plan (substitute teachers do not partici[pate in TRS, but instead in 457b) evoke WEP & GPO the same way?

    Any thoughts, greatly appreciated. Thanks in advance.

    1. jblankenship says:

      It’s a complicated set of questions. What you must weigh are the benefits of the teaching position (including the fact that it’s your passion!) against the Social Security benefits that would not be earned if you’re not covered by SS. Presumably the pension will more than make up for the reduction in SS benefits due to WEP – as the maximum WEP impact is to be no more than 50% of the pension triggering WEP. Plus the WEP impact can be less than 50% of the pension if the pension is more than double the maximum WEP figure, presently at $442.50/month.

      To your specific questions:
      The break-even analysis is a fairly in-depth review, which a financial advisor may be able to help with. You should find a local (in Texas) advisor to help you with this. I am not registered to work with Texas residents, so I can’t help you.

      Working for a school district where your pay is covered by Social Security tax will eliminate WEP impact on that income/future pension.

      A 457b plan, if the income was not subject to Social Security tax, will still trigger WEP impact.

  4. Sue A. Doss says:

    I waited until full retirement age of 66 before taking Social Security benefits. I have a retired teachers pension from the state of Missouri. I applied online for benefits and was contacted and told how much I my SS would be reduced because of teachers retirement, and was then told I would be eligible to receive spousal benefits from my husbands SS benefits. 26 months later, get a letter telling me I was not eligible and would have to repay almost $12,000 back that I should have not received.

    Seems to me, the SS Administration needs to get their head together and not pay benefits that people are not eligible for.

    This is the pits!!!!! Coming up with that amount has not been easy.

    Know nothing can be done about it, but wanted to vent.

  5. Barbara says:

    Hello again,
    After much paperwork exchange, and nail biting, Social Security has decided that WEP and GPO don’t apply and I am set to receive benefits under my husband’s record. This is a huge relief. Happy Thanksgiving to all!

    1. jblankenship says:

      That’s great news, Barbara. Thanks for the followup!

  6. Barbara says:

    Hello! I am coming up on 66 years of age and applying for Social Security. To my surprise, I get a phone call and letter explaining that my benefit will be reduced due to wep and gpo. In the 1980’s I worked in my family owned business (not government!) for about 7-8 years, and was exempt from paying Social Security taxes. I did have a retirement plan and ended up with $22,000 put in. Later I worked for the same business and paid Social Security, and continued to fund the retirement plan. My husband owned the business and managed 35 years of near maximum income.
    I was told originally that I would get $750 on my record plus some of his benefit or about $1300, but now it seems like I may end up with $300-400. Can you help me?

    1. jblankenship says:

      You should talk to SSA and explain the situation to them, and ask them to explain why WEP and/or GPO applies to your situation.

      1. Barbara says:

        I have talked to them 3 times now. I have explained the situation to them. Today they said they need a letter from the holder of my Rollover IRA, so I have requested that, and will forward that to my SS person. Luckily I have not spent any of the money, and have kept all my records about it. My SS person says that GPO applies to government and private sector when SS was not paid and retirement funds were paid. As for the GPO, would you say that it applies to our situation if neither my husband or I has any government pension?

        1. jblankenship says:

          GPO should definitely not impact your situation. I suspect it is WEP in play here, rather than GPO. GPO is specifically oriented to government jobs, whereas WEP could be due to other jobs that did not pay SS tax.

          1. Barbara says:

            If I withdraw my application completely, then refile a restricted application for my husband’s benefits, would this eliminate my WEP problems? My husband did the file and suspend before the April 30th deadline.

          2. jblankenship says:

            Yes, it would eliminate the WEP impact, but it would trigger the GPO impact which would be even worse than WEP. GPO reduces your spousal benefit by 2/3 of the amount of the government pension being received, where WEP is at maximum 50% of the pension amount or 50% of your SS benefit. GPO can wipe out your spousal benefit altogether.

  7. Gaius Gracchus says:

    Check this out:
    If you work for an entity that does not participate in social security, and you put money into a 457 or 401k where there is NO EMPLOYER matching – that is, it is 100% YOUR MONEY, it does not matter!
    The SS Administration will reduce your social security ANYWAY!
    How crazy is that!!!!????

    1. Barbara says:

      Seems crazy! Have you done all the appeals possible?

  8. Connie says:

    I will be receiving pension benefits that are subject to the WEP. My wife will receive Social security benefits. We are trying to determine if it is worth having 50% of my pension paid to my wife if I die first and I take a smaller amount at retirement. Will her SS be compromised with the 50% WEP retirement if I die first?

    1. jblankenship says:

      No – WEP only impacts the person who earned the pension. So only your benefits will be WEP-impacted, your wife’s benefit will not.

  9. Ramesh says:

    Jim
    I am receiving SS Benefits at age 65. I do realized that my SSBenefits will be subject to WEP when I receive foreign government pension. I have differ my foreign government pension untill age 70. When I claimed foreign gov pension will my SS Benefits reduced significantly higher than it would have been if I would have claimed foreign gov pension at age 65 i.e. same time when I claimed SS Benefits.
    How do I calculate penalty for deffering foreign gov pension?

    1. jblankenship says:

      Generally the WEP impact will be the lesser of $428 (for 2016) or 50% of pension you are receiving based on work that is not covered by Social Security tax. So your WEP impact will likely be the same no matter when you take the pension, as long as the pension is more than $856 per month.

      1. Ramesh Shah says:

        Thanks for your quick reply.
        I turned 62 in 2012 and claimed SSB in 2015. As per SS web WEP calculated based upon PIA when one turned to 62. As per your comment if benefits does not have significant influence then it is worth having differ foreign pension.
        Is my interpretation correct?
        Once again thank for your response.

        1. jblankenship says:

          Whether it is “worth” deferring the pension is up to you. In the interim, your SS benefit will not be reduced until you start the pension.

  10. Dianne Yonce says:

    Jim,

    I will be subject to WEP. My pension will be $506/mth at age 62 and my SS benefit estimate will be $1023/mth at 67. I worked for 24 yrs in jobs not impacted by WEP but less than 20 yrs with “substantial earnings” so my SS will be reduced by the max of 1/2 pension or $253/mth to $770/mth. My husbands SS at 67 will be $2806/mth. If I take the 50% spouse benefit my SS benefit would be reduced by 2/3 my pension to $1150/mth. Taking the GOP is the better option. Do I have this correct??

    1. jblankenship says:

      Yes, that sounds correct to me.

      jb

  11. David says:

    I am subject to WEP. I am currently working and am over 21 years with substantial earnings thereby reducing affect of WEP. If I continue to work past age 66 (my FRA) will those years of substantial income earned after my FRA continue to reduce the effect of the WEP on my benefit? Thanks.

    1. jblankenship says:

      Yes, it doesn’t matter when you earn the “year of substantial earnings” – although, if you start taking benefits and continue to earn substantial years, there will be a lag for the earnings to take effect each year. Your WEP impact should recalculate every calendar year.

      jb

  12. John Milner says:

    Hi Jim. I entered government service in 1974 as a CSRS employee, left in 1988, took my money out, and did NOT repay it. I returned to government service in 1990 as a CSRS-Offset employee (where I remained until I retired in 2012). My ex-wife (whom was married to for more than 20 years, died the same year. When she died, she was collecting Social Security Disability benefits. As I understand it, I am eligible to collect survivor benefits when I turn 60 later this year, provided that I have not re-married. A couple of questions … will the fact that I am drawing a government pension have any impact on the survivor benefits that I receive from Social Security? What are my options when I turn 62, and am eligible for my own Social Security benefit? I may have a few follow-up questions, but this is a good start. I would certainly appreciate any information that you can provide. Thanking you in advance. John

    1. jblankenship says:

      John –

      If you’re drawing a government pension based on work that was not covered by SS, then any survivor benefit that you might be eligible for will be reduced by 2/3 of the amount of the government pension you’re receiving.

      At 62 if you have enough credits (40 quarters) in the SS system you may be eligible for a retirement benefit based on your own record. If the government work was not covered by SS, the Windfall Elimination Provision will apply, reducing your benefit by up to $413 (for 2015).

      jb

  13. milton stockmyer says:

    Jim, Here is my situation. I worked for more than 30 years. I applied for SS at age 66 and received $2,355.20. My wife worked for 30 years at local elementary school (PERA) and collected pension when she retired at 64. She also applied for SS at 66 (since she had 40 qtrs of working undering SS). She collected $5,000 PERA and collects only around $100 SS (based upon just her SS). What could she collected if she applied for spousal SS under my SS?
    Thanks.
    MS

    1. jblankenship says:

      Milton –

      If the $5,000 from PERA is a monthly figure, your wife would not collect anything from a spousal benefit due to the Government Pension Offset. This GPO reduces any spousal or survivor benefit by 2/3 of the amount of pension being received, and can completely eliminate the spousal or survivor benefit.

      jb

  14. carol wood says:

    I have not reached retirement yet but will collect social security based on my working when I reached regular retirement. My husband was a government employee who died while still working at 58. I am entitled to part of his pension as surviving spouse. Will my SS benefits based on my earnings be subject to WEP if I have less than 30 yrs of substantial earnings?

    1. jblankenship says:

      Carol –

      A pension that is based on someone else’s earnings does not trigger WEP or GPO impact to your Social Security benefit. So the survivor pension that you will receive based on his government job does not cause WEP to affect your Social Security benefit.

      Hope this helps –

      jb

      1. carol wood says:

        Thank you.

      2. marie greffen says:

        I am glad I saw your reply to Carol.. I have been worrying about this for a long time.I am so happy about this.Will my security benefit be affected while he is still alive? Toni

        1. jblankenship says:

          I don’t know your circumstances, so I can’t say for sure. If you are in the identical situation as Carol, then no your benefits would not be impacted by a pension based on someone else’s earnings record.

  15. Bob says:

    Here’s a scenario…I am subject to WEP. My pension will be $1200 at age 65 and my ssi benefit will be $1200 at 65…so my ssi will be reduced to about $800. WHAT IF…I DON’T take my ssi and I apply for 1/2 of my WIFE’S ssi…her ssi will be $2400 and my wife is NOT subject to WEP. So I can take 1/2 of that ($1200) and be back to square 1…earning $1200 ssi..The question is…will I also be penalized by WEP if I take 1/2 of her earnings???

    1. jblankenship says:

      Most likely you’ll be impacted by GPO (Government Pension Offset) when you take a spousal benefit. This is more impactful, resulting in a reduction equal to 2/3 of the amount of your governmental pension. In your case that would be a reduction of $800, for a resulting spousal benefit of $400.

      jb

  16. David says:

    What if the reverse were the case. Sandy has a pension subject to WEP and her husband has social. If Danny dies would his survivors benefit through social security be subject to WEP since his wife has the pension?

    1. jblankenship says:

      David –

      In the scenario you presented, WEP would not impact the Survivor Benefit that Sandy has coming to her, but GPO would.

  17. Hi Jim,

    What are the actual mechanics of how the WEP is calculated? First of all, how does SSA know that the individual is receiving a pension where SS taxes were not paid?

    From your experience, is the WEP calculator on the SSA website pretty accurate in helping a person calculate what their reduced PIA will be?

    Finally, I assume that the same 8% increase from FRA to age 70 still applies to the reduced PIA?

    Thanks,
    Johnny Roland

    1. jblankenship says:

      Hello Johnny.

      The mechanics of the WEP calculation can be found in this article: http://financialducksinarow.com/6516/what-is-wep/

      When you receive a pension (or any compensation) the IRS receives a copy of the 1099-R and they communicate this information to SSA. From this, SSA may determine that you’re receiving a pension from a job where SS taxes were not paid, and therefore the WEP reduction will apply.

      Yes, the WEP calculator on the SSA website does a good job of helping you calculate the reduced PIA.

      You’re correct, that the 8% Delayed Retirement Credit is based upon the reduced PIA after WEP.

      Hope this helps –

      jb

      1. agrible says:

        Hi Jim,
        To continue that point, what are ramifications on spousal social security benefits of the “WEP-impacted” spouse who takes their pension at a job -where SS taxes were not paid – as a lump and rolls it into a personal IRA?

        Thx!
        AG

        1. jblankenship says:

          The pension does not have to be in the form of an annuity payment, if taken as a lump sum then SSA will estimate the impact for the purpose of WEP applicability as if it were paid out over the lifetime of the recipient.

      2. Delayed retirement credits are not relevant to the discussion because the WEP applies to benefits that have already started.

        1. jblankenship says:

          WEP applies to benefits that have started, even if they started at age 70. If the benefits started at age 70 then Delayed Retirement Credits would be relevant.

          1. Joe Alfonso says:

            You confuse your point by talking about DRCs in this context. The WEP reduces the PIA, whether it earned DRCs beforehand or not.

          2. jblankenship says:

            The original commenter asked the question about DRCs applying to the reduced PIA. So I explained that they do.

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