Pensions from Work Not Covered by Social Security

Not every worker is eligible for Social Security benefits. The Windfall Elimination Provision applies to benefits based on the worker’s earnings record when he or she also receives pension benefits from an employer that does not withhold Social Security taxes, and the Government Pension Offset applies to spousal or survivor’s benefits for widows and widowers.

Prior to the implementation of the Windfall Elimination Provision (or WEP) in 1983, retirees receiving pensions from jobs in which they had not contributed to Social Security could still claim substantial Social Security benefits. Most of these individuals were police officers, fire fighters, teachers, or employees of federal, state, or local government agencies. Because these employees typically did not pay Social Security taxes while in these jobs, their Social Security contributions were limited to jobs held before or after these pension-eligible positions or part-time jobs worked throughout their careers. The result was that their wages for the purposes of calculating Social Security benefits were artificially low, thus qualifying them for Social Security benefits that were not earned.

The Windfall Elimination Provision was implemented to increase fairness in the way that Social Security benefits were provided. The Windfall Elimination Provision may reduce Social Security benefits for “double dippers”—individuals who receive retirement benefits from a retirement system other than Social Security.

In addition to the WEP, the Government Pension Offset (GPO) may also limit benefits. Under Social Security provisions, an individual qualifies to receive retirement benefits in one of two ways:

  • Receiving a worker benefit based on his or her own work record, or
  • Receiving a spousal benefit that is 50 percent of the worker’s benefit amount.

Many times an individual is eligible for benefits both as a worker and as a spouse. In such a case he or she receives the greatest benefit amount to which he or she is entitled. The worker’s own benefit amount is used as the base. If the worker’s benefit is lower than the amount eligible as a spousal benefit, the worker’s benefit is then moved to the higher amount. In other words, the worker’s own and the spousal benefits are not added together, and the amount of Social Security benefit the individual receives as a spouse is offset by any benefit he or she is qualified to receive based on his or her own work record. The actual offset is two-thirds of the pension benefit.

Let’s use an example to illustrate the impact of the GPO. Suppose Nancy’s husband, Andy, receives $2,000 a month in Social Security benefits based on his record, while Nancy receives $1,800 a month in benefits from the Texas Teachers Retirement System. If not for her teacher’s retirement, Nancy might be eligible for spousal benefits of $1,000 a month, half of Andy’s benefits. But the GPO eliminates Nancy’s spousal benefits because her teacher’s retirement is more than her spousal benefit would have been.

After Andy’s death, Nancy would qualify for survivor’s benefits. If not for her teacher’s retirement, Nancy might receive $2,000 a month from Social Security, Andy’s actual benefit level. But the GPO reduces this benefit by 2/3 of her teacher’s retirement, meaning that she will receive $800 per month from Social Security [$2,000 – (2/3)$1,800 = $800].

There is no doubt that Social Security can be confusing and overwhelming, and we can help. We are experts in Social Security and can help you make the choices that are best for your situation. Contact us for advice in managing your selections, or start with your free, no-obligation Social Security Snapshot Report.

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