Social Security Spousal Benefit restrictions?

[Billk400]

My wife worked for a school system that withdrew from Social Security in the early 1980's. She has enough credits in SS from the job prior to withdrawing to have qualified for small benefits. The school system set up an "alternative / replacement" program after withdrawal. My questions are:
1. From what I can tell she can still get reduced SS benefits after applying the "windfall elimination provision" (for the benefits she will receive from the school system alternative / replacement program). Is this correct?
2. Is she eligible for spousal benefits (50% of my benefits) which will be much higher than claiming for her benefits, especially when the windfall elimination provision is factored in? Also would a windfall elimination type provision apply to the spousal benefits? Not sure if her being covered by an alternative / replacement program for SS will affect her eligibility to get spousal benefits.

Thanks in advance for any insight you might have.

 

[footenote]

"If you receive a pension from a federal, state or local government based on work where you did not pay Social Security taxes, your Social Security spouse’s or widow’s or widower’s benefits may be reduced."

http://www.ssa.gov/pubs/EN-05-10007.pdf

 

[mpeirce]

Does anyone know the story behind why various government entities were allowed to opt out of social security?

 

[footenote]

"Under federal law, if a public pension is offered, Social Security coverage is not mandatory, and 27.5 percent of local and state public sector workers were not covered [by SS] in 2008....

"But in some public-sector offices, not all employees have to participate in the pension plan, and not everyone qualifies for a pension (say, because they work on a part-time, seasonal or temporary basis).

"In that case, the law says a worker has to either contribute to Social Security or participate in a third option: a FICA Alternative Plan."

Some state and local-government employees have retirement-savings options - Chicago Tribune

 

[Tadpole]

mpierce, This is not an informed response but rather what I was told years ago.

My understanding was that the legal status of requiring the States to non-voluntarily contribute to a federal tax was in question. (States don't tax the federal government either.) I imagine that if it weren't for the employer match, the state employee would have been in SS from the beginning. (Assuming what I understand to be true.)

Now something I do know and understand. The reason for the reduction in benefits is that the calculation for benefits is not set up to accurately compute the entitlement so it computes it based on available data. (States don't report the yearly salary to the federal government.) There is a concept of wage cohorts that I think came out of the Greenspan Commission in the 80s. Inputting the scarce data on state employees that SS had, state employees appeared to have been low earners. So they fell on a different SS bend point than their wage cohorts. If you looked at it as return on investment, people who met eligibility but did not pay into SS most of their lives were the most rewarded of all participants with the exception of non-working spouses. The federal government still does not have the wage data so they have a reduction based on the data they have. The system could be fairer if SS received the wage data every year.

The clearest explanation I've seen with examples of the reason for the reductions is this proposal by Orszag and Diamond at Brookings.
http://www.brookings.edu/~/media/research/files/opinions/2003/11/03saving%20diamond/20031103.pdf

 

[dm]

Even though my wife has enough SS credits she will not get anything due to the WEP, she has a nice pension.

Due to this I may go ahead and start taking SS at 62.

 

[Tadpole]

Even though my wife has enough SS credits she will not get anything due to the WEP, she has a nice pension.

Due to this I may go ahead and start taking SS at 62.

What situation results in a 100% reduction due to WEP? I didn't think that was possible. That isn't the target goal of the adjustment.

 

[dm]

What situation results in a 100% reduction due to WEP? I didn't think that was possible. That isn't the target goal of the adjustment.

Her pension is $80,000. 2/3 of that is more than her SS payment. If I understand it correctly you reduse the payment by 2/3 of the pension amount. The net is less than 0.

 

[Accidental Retiree]

Her pension is $80,000. 2/3 of that is more than her SS payment. If I understand it correctly you reduse the payment by 2/3 of the pension amount. The net is less than 0.

You seem to be talking about the GPO, which will affect her spousal or survivor's benefit if she wants to collect on your SS record. The WEP applies to her collecting on her own SS record and is capped. See the following, from the Social Security website.


*****
Windfall Elimination Provision (WEP) — If you receive a pension from employment in which you did not pay Social Security taxes and you also qualify for your own Social Security retirement or disability benefit, your Social Security benefit may be reduced, but not eliminated, by WEP. The amount of the reduction, if any, depends on your earnings and number of years in jobs in which you paid Social Security taxes, and the year you are age 62 or become disabled. To estimate WEP's effect on your Social Security benefit, visit Retirement Planner: How the Windfall Elimination Provision Can Affect Your Social Security Benefit. In 2014, the maximum monthly reduction is $408. For more information, please see Windfall Elimination Provision (Publication No. 05-10045) at Untitled Document.

Government Pension Offset (GPO) — If you receive a pension based on federal, state or local government work in which you did not pay Social Security taxes and you qualify, now or in the future, for Social Security benefits as a current or former spouse, widow or widower, you are likely to be affected by GPO. If GPO applies, your Social Security benefit will be reduced by an amount equal to two-thirds of your government pension, and could be reduced to zero. Even if your benefit is reduced to zero, you will be eligible for Medicare at age 65 on your spouse's record. To learn more, please see Government Pension Offset (Publication No. 05-10007) at Untitled Document.

 

[akck]

2. Is she eligible for spousal benefits (50% of my benefits) which will be much higher than claiming for her benefits, especially when the windfall elimination provision is factored in? Also would a windfall elimination type provision apply to the spousal benefits? Not sure if her being covered by an alternative / replacement program for SS will affect her eligibility to get spousal benefits.



Thanks in advance for any insight you might have.

This will be affected by GPO, as mentioned in another post. The result may mean she gets no spousal benefit, depending on the amount of her pension.



Sent from my iPhone using Early Retirement Forum

 

[ripper1]

You seem to be talking about the GPO, which will affect her spousal or survivor's benefit if she wants to collect on your SS record. The WEP applies to her collecting on her own SS record and is capped. See the following, from the Social Security website.


*****
Windfall Elimination Provision (WEP) — If you receive a pension from employment in which you did not pay Social Security taxes and you also qualify for your own Social Security retirement or disability benefit, your Social Security benefit may be reduced, but not eliminated, by WEP. The amount of the reduction, if any, depends on your earnings and number of years in jobs in which you paid Social Security taxes, and the year you are age 62 or become disabled. To estimate WEP's effect on your Social Security benefit, visit Retirement Planner: How the Windfall Elimination Provision Can Affect Your Social Security Benefit. In 2014, the maximum monthly reduction is $408. For more information, please see Windfall Elimination Provision (Publication No. 05-10045) at Untitled Document.

Government Pension Offset (GPO) — If you receive a pension based on federal, state or local government work in which you did not pay Social Security taxes and you qualify, now or in the future, for Social Security benefits as a current or former spouse, widow or widower, you are likely to be affected by GPO. If GPO applies, your Social Security benefit will be reduced by an amount equal to two-thirds of your government pension, and could be reduced to zero. Even if your benefit is reduced to zero, you will be eligible for Medicare at age 65 on your spouse's record. To learn more, please see Government Pension Offset (Publication No. 05-10007) at Untitled Document.

Because of GPO based on my government pension my wife will be getting her benefit at 62 because I will get nothing if she predeceases me.

 

[Tadpole]

Her pension is $80,000. 2/3 of that is more than her SS payment. If I understand it correctly you reduse the payment by 2/3 of the pension amount. The net is less than 0.

I see that other's have answered and explained to you the difference in WEP and GPO. There isn't much I can add.

With GPO it helps to remember that, in a 2-worker, 2-entitlement to SS family, the widow of the two, only gets entitlement to the maximum of the two. For example, for spouses with equal benefits, the widow loses all of one of the benefits. So, what is the analogy when the non-SS pension of a worker is claiming widow's benefits? (Think about the fact that the SS system cannot make non-SS worker give up part of his/her pension for deceased SS worker's full benefits.) I don't know where 2 for one came from but I imagine some government mathematician came up with it.

My husband and I both paid into SS; my benefit is higher. Like your spouse, I will get zero dollars increase in income from SS if he dies before me. So, again GPO tries to be fair to me and not give someone who did not pay into SS for as many years as I did a windfall (assuming the 2/1 thing to be a fair number).

 

[dm]

This is great news! It may not be a lot, we looked up her estimated SS benefit and it's around $950. But there would still be something left even if it was reduced by the max. She is currently working as an adjunct professor, now that we moved she is doing it online. She enjoys it and it really does not take up much of her time. We currently just max out our IRA's with the income. My wife is 53 so she will probably continue to add years of credit.

Extra money we never planed on is always nice.