An SS Question -- no, not THAT one

[Bryan Barnfellow]

I have a problem that I am hoping you all might help me solve. It doesn't have anything to do with when to start benefits you will be very pleased to know!

I spent most of my working life in the US but the last five here in Switzerland, working for a Swiss-based non-profit organization. So, my employer and I do not make US SS contributions. I am required to pay into the Swiss SS system of course and will have a small benefit from it when I turn 65, along with my US SS benefits.

I am wondering if I will be affected by the Windfall Elimination Provision (WEP). In addition to paying into Swiss SS, my employer and I pay into a private retirement account in Switzerland (referred to as Pillar II), which when I retire will be essentially annuitized (I have no choice), creating an income stream for the rest of my life. It's not a lot; but it's greater than zero. It's almost like a 403(b) TIAA-CREF account in the US. Does this qualify as a "pension" in WEP terms? I cannot find a definition of it online at SSA or anywhere else. It seems to be focused mainly on government employees. I definitely do not have a defined benefit pension in the usual sense.

I only have 29 of the 30 years of payments into SS, so I am one year short and cannot escape the WEP IF it applies to me. Does it?

Thanks

-BB

[Alan]

29 years, boy you were just short of the magic 30.

I'm in a similar situation, 2 small UK private pensions and the UK equivalent of SS to come at age 67.

I believe all 3 of my foreign pensions will be subject to WEP, so would expect the same to apply to your situation, but I may be completely wrong.

Have you tried running your numbers to see how much you will actually be affected?

Calculators: Online Calculator (WEP Version)

There are a couple of good ex-pat sites where this question is discussed at length with many in a similar situation (I'll send you a PM)

[Bryan Barnfellow]

Thanks Alan for your response and the very helpful PM. I'm now researching this issue. It appears so far that my Swiss SS and the private retirement fund will be counted as pensions and thus I will be subject to the WEP :-( Not quite sure where my "windfall" is coming from; but I won't try to fight city hall on this one.

Since I am only one year short of the 30 threshold, I am thinking that once I retire from my j*b here (at age 59) this year, I will have time to try to add that 30th year at the minimum level that the SSA defines as "substantial"-- perhaps as an independent consulting gig, where I pay the full SS myself on the income. The 2014 minimum is $21,750.

-BB

[bingybear]

Quote:

Originally Posted by Bryan Barnfellow It appears so far that my Swiss SS and the private retirement fund will be counted as pensions and thus I will be subject to the WEP :-( Not quite sure where my "windfall" is coming from; but I won't try to fight city hall on this one. -BB

Both my wife and I worked overseas, but when we did, we still paid SS in the US. I'm sure you filed taxes in both countries. For the last several years my wife worked for a non-profit that had a 403(b)... however unlike many non-profits... they did pay SS. We did not come back with any pensions from our overseas.

WEP is not just for federal, but some state and local employees and non-profits too. Really it is any job that pays pensions while not having the employee pay into SS. I think the idea is that your are getting another pension from earning not subject to the SS tax. Because these $ were not included, your average is lower than it would have been if they were taxed... and thus you have a bigger % of your calculation for SS in the 90% window.

If one could find several systems like SS... and work just enough in each to fill up the part where they get 90% payback... one could really game the system.... not that I'm saying that is what you were doing.

I would look at what the WEP reduction looks like before deciding to work. it may not be all that significant.

[unno2002]

A place to start reading on the applicable tax treaty:

International Programs - Totalization Agreement with Switzerland

[Bryan Barnfellow]

Thanks, bingybear and unno2002. Very helpful. I am guessing that my reduction will be around 5% from the 90% factoring of the first bend point (thus, 85%). So, not the end of the world by any means and likely not worth trying to build in that 30th year. That would just mean more w*rk!

-BB

[2B]

Quote:

Originally Posted by Bryan Barnfellow Thanks Alan for your response and the very helpful PM. I'm now researching this issue. It appears so far that my Swiss SS and the private retirement fund will be counted as pensions and thus I will be subject to the WEP :-( Not quite sure where my "windfall" is coming from; but I won't try to fight city hall on this one. Since I am only one year short of the 30 threshold, I am thinking that once I retire from my j*b here (at age 59) this year, I will have time to try to add that 30th year at the minimum level that the SSA defines as "substantial"-- perhaps as an independent consulting gig, where I pay the full SS myself on the income. The 2014 minimum is $21,750. -BB

Having 29 vs 30 years only means a zero is in for one of your years used in the calculation. Going out of your way to put in a token amount won't do much for your benefit.

I'm not a WEP expert but my DW had an option of taking a school district pension or a lump sum. When I did her calculation, her several hundred dollar a month pension added less than $40 to her spousal SS benefit. The rest was taken by WEP. We took the lump sum.

To get SS you need 40 quarters of covered income. In practice 4 quarters of credit are "earned" in any year that has $4,000 in income. This $4,000 can all be earned in one quarter. We are dealing with a government here so don't expect the "rules" to mean what they seem to say.

[ProspectiveBum]

Quote:

Originally Posted by 2B Having 29 vs 30 years only means a zero is in for one of your years used in the calculation. Going out of your way to put in a token amount won't do much for your benefit.

Per the IRS, WEP will not apply to individuals who have 30 years of "substantial earnings". That's why 29 vs 30 years is significant for the OP (I agree that the difference in his SS benefit for that one additional year wouldn't be dramatic).

[bingybear]

Quote:

Originally Posted by 2B I'm not a WEP expert but my DW had an option of taking a school district pension or a lump sum. When I did her calculation, her several hundred dollar a month pension added less than $40 to her spousal SS benefit. The rest was taken by WEP. We took the lump sum.

hope you did this right... taking a lump sum does not negate WEP in all cases

from here

2. Withdrawals

Withdrawals of the employee's own contributions and interest made before the employee is eligible to receive a pension are not pensions for WEP purposes if the employee forfeits all rights to the pension. This rule applies even if the employer paid the employee contributions.
Withdrawals of the employee's own contributions and interest made after the employee is eligible to receive a pension are considered a lump-sum pension for WEP purposes.
Any separation payment, withdrawal, or refund consisting of both employer and employee contributions is a pension; for WEP purposes whether made before or after the employee is eligible to receive a pension.

[Choices]

Check out socialsecuritychoices.com blog. It may help you calculate the cut you will be facing...it looks to be a small one.

[akck]

WEP only affects the first bend point of the benefit calculation and the missing year is a 5% reduction ( 85% instead of 90%). So if you were eligible now, it would reduce your benefit around $42/month.

Chances are that another year of SS earnings will not have a huge effect on your monthly earnings average, so you need to decide if $42/month is worth working another year.


Sent from my iPhone using Early Retirement Forum

[Bryan Barnfellow]

Thanks for all the responses. Definitely not worth more w*rk to make up the 5% reduction in overall benefit. That said, other expats may want to take note of this WEP rule and its implications!

-BB

[Alan]

Quote:

Originally Posted by Bryan Barnfellow Thanks for all the responses. Definitely not worth more w*rk to make up the 5% reduction in overall benefit. That said, other expats may want to take note of this WEP rule and its implications! -BB

+1

In my case I could have worked to age 62 to avoid WEP or ER at age 55 and lose $500/month or ER somewhere in the middle, doing the OMY thing.

I was fortunate to not need the $500/month and able to choose to freedom at 55.