Ask Rusty - Upset about wife’s reduced Social Security benefits
Dear Rusty: My wife contributed to Social Security before and after working alongside her first husband in their business, but with no contributions during that period. In more recent years she taught public school for enough years to qualify for NV PERS.
Social Security is telling us that when she starts her PERS at age 65 about 40 percent of her SS will be taken away. To us the two should be totally separate. Can you explain the logic of this reduction? Why should she be penalized for working a period of time outside of a SS profession?
Thank you for your response in advance. Signed: Upset Husband
Dear Upset Husband: If your wife is eligible for Social Security on her own record, and she will also get a pension from Nevada’s Public Employee Retirement System (PERS), then her Social Security benefit will, indeed, be affected by Social Security’s Windfall Elimination Provision (WEP) when she starts her PERS pension.
The WEP provision was enacted by Congress in 1983 as part of a broader program to restore Social Security to solvency against looming financial issues.
According to the Social Security Administration, WEP was intended to create better equality in how benefits were computed for those who worked their entire career contributing to Social Security, and those who did not.
The logic was that, since the Social Security benefit computation is intentionally weighted toward lower-earning workers, to compute benefits in the same way for those who did not contribute fully to Social Security was unfair because they also receive an enhanced pension in addition to Social Security. So, they changed the benefit calculation for anyone with a pension from employment which did not contribute to Social Security.
That formula, which normally uses 90 percent of the first “bend point,” or segment, of one’s average indexed monthly earnings (AIME) over their lifetime, instead uses a 40% multiplier for those with a non-SS-Covered pension.
The “bend point” values change each year, but for 2018 the first bend point value is $895, so someone affected by WEP applying for Social Security today would see their benefit contribution from the first bend point — the one which contributes the most to one’s benefit amount — as $358 instead of $806.
The WEP reduction is mitigated if someone has more than 20 years of substantial earnings from employment which contributed to Social Security, and WEP goes away if one has more than 30 years of substantial SS-covered earnings. There is also a maximum WEP reduction for each year, and the reduction cannot be more than 50 percent of the non-covered pension, so WEP can never completely eliminate one’s Social Security retirement benefit.
But there’s other bad news: when your wife is eligible for Social Security spousal or survivor’s benefits and her PERS pension has started, she will be affected by another provision called the Government Pension Offset (GPO).
The GPO reduces spousal and/or survivor’s benefits by 2/3rds of the amount of the non-covered pension, which can entirely eliminate the Social Security spousal or survivor benefit. And the rationale for GPO mirrors that for WEP. I know it will be small comfort, but you are hardly alone when it comes to being upset about your wife’s Social Security benefit being reduced by WEP.
I understand your contention that “the two should be totally separate” and there are many, including some members of Congress, who share that view. In fact, there is a bill before Congress now known as H.R. 1205 — The Social Security Fairness Act — which proposes to eliminate both WEP and GPO.
Unfortunately, that bill has made little progress despite having about 188 bipartisan cosponsors, and little prospect for passage seems possible at this time. While I know this doesn’t relieve your displeasure about WEP, I hope it at least somewhat clarifies why it was enacted and how it works.
Russell Gloor is a certified Social Security Advisor with the Association of Mature American Citizens.