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Avoiding WEP Reduction on Social Security Benefits
Old 03-02-2015, 11:24 AM   #1
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Avoiding WEP Reduction on Social Security Benefits

I am eligible for a non-covered pension from municipal employment. The pension is a defined contribution 457 (deferred compensation) plan, and qualifies as a retirement plan and pension. The pension is funded entirely by me (no employer contributions), and under the plan rules, I can set the date that disbursements are to begin, the number and frequency of disbursement, and the amount of each disbursement. Presently I am 53 years old, and based on covered private-sector employment, I will be eligible for social security benefits in nine years, at age 62. There is no age requirement as to when I may take disbursements from the 457 account, nor are there are early withdrawal penalties as there would be with a 401(k) deferred compensation plan.

Would I be successful in avoiding the application of the WEP to my social security benefits by directing the pension plan to begin disbursing monthly payments to me this year, and to continue doing so for the next 9 nine years, such that the 457 account will be depleted before I turn 62 years old, and no longer entitled to non-covered pension payments?

RS 00605.360C.5 states that "[t]he WEP computation is no longer used when . . . the entitlement to the pension payment ceases or the proration of a lump sum payment based on a specified period ends . . . ." RS 00605.364C.4, relating to "unique payments," states that "[w]hen an employer . . . allows an individual who is eligible for retirement . . . benefits to determine the disbursement amount, the duration of the pension or the start date, WEP is applicable when the individual first becomes entitled to the pension per RS 00605.360B.3. Treat the pension as a lump sum and follow the instructions in the next subsection RS 00605.364C.5." And that next subsection RS 00605.364C.5 states that "[w]hen the entire pension is paid in a lump sum, the amount may represent a payment for a specific period of time . . . . Generally, the pension-paying agency will prorate the lump sum to determine a monthly amount for WEP purposes.If the agency will not provide this information, prorate the lump sum to determine the monthly pension amount as follows: a. Specific Period - Divide the lump sum by the number of months in the period specified by the pension-paying agency. See RS 00605.364C.5.a for when WEP application ends. . . ." I think that by completely emptying out the 457 account, I will no longer be entitled to pension payments, and the WEP would not be applied to my social security benefit.

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Old 03-02-2015, 10:54 PM   #2
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Clever, and you will be able honestly answer when you apply for SS that you are not receiving any other pension.

I believe (after a quick read) that simply avoiding overlap means that WEP does not apply. As only overlapping Pensions are what make WEP applicable as below:
1. When WEP is applicable

The formula for determining the PIA is modified when the following situation occurs:
  1. A worker becomes eligible for old-age insurance benefits after 1985; or
  2. A worker becomes eligible for disability insurance benefits after 1985; and
  3. For the same months after 1985 the worker is entitled to old age or disability benefits, the worker also becomes entitled to a monthly pension(s) for which he or she first became eligible for after 1985 and, the pension is based in whole or in part on earnings in employment which were not covered by Social Security.
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