Teacher Pension and WEP

[txtig]

DW retired from her public school job four years ago at age 61. She worked long enough to earn a modest pension (around $18,000 per year at age 65).

She had previously worked in the public sector and started taking social security at age 62, which was not reduced by WEP since she hasn’t yet started her teachers pension.

She will be starting her teacher pension later this year when she turns 65. Not sure exactly what is required with respect to notifying SSA. Is she required to notify them? Or is that something the school district will do once they start her pension. If anyone has any experience with this, I’d appreciate you insight.

 

[youbet]

I believe your DW should have informed SS that she had a future public pension coming at the time she started SS at 62. I have no idea if she's "required" to do so now or if she should just sit on her hands and see if they notice.......

It would make my DW very nervous to have a question like this hanging over her head. Therefore, I think she'd call SS and ask so that she's compliant with the rules (if WEP or GPO are going to apply). These things have a way of catching up with you eventually and fretting over when would drive her nuts. Your DW may be different in that regard.

In DW's case, WEP and GPO impacted her to the point that instead of a check each month, she gets a bill!

 

[Budatx]

I'm also affected by WEP. A few years ago I met with a SS rep at the SSA office to confirm my all entries on my SSA record. The rep did not ask me if I had a public pension, however, I volunteered it because I wanted to confirm if it applied to me. The rep left me with the impression that they do not ask if you are/will be subject to WEP. Given the numerous variables and circumstances that may affect one's SS benefits, I seriously doubt that the reps are required or expected to ask about any of them. The fact that SSA is not required to proactively inform anyone about WEP/GPO leaves me to conclude that it's up to each one of us to research SS rules. I had never heard of WEP until a few former colleagues told me that their monthly SS payment was significantly less than what their yearly statements projected. Because they also had never heard of WEP, their only explanation was that it had something to do with their public pension. I started researching WEP and discovered that I could escape any penalty if I have 30 years of substantial earnings as defined by SSA. I just completed 29 such years and next May will have 30 years. Good luck!

 

[Sunset]

I'm also affected by WEP. A few years ago I met with a SS rep at the SSA office to confirm my all entries on my SSA record. The rep did not ask me if I had a public pension, however, I volunteered it because I wanted to confirm if it applied to me. The rep left me with the impression that they do not ask if you are/will be subject to WEP. Given the numerous variables and circumstances that may affect one's SS benefits, I seriously doubt that the reps are required or expected to ask about any of them. The fact that SSA is not required to proactively inform anyone about WEP/GPO leaves me to conclude that it's up to each one of us to research SS rules. I had never heard of WEP until a few former colleagues told me that their monthly SS payment was significantly less than what their yearly statements projected. Because they also had never heard of WEP, their only explanation was that it had something to do with their public pension. I started researching WEP and discovered that I could escape any penalty if I have 30 years of substantial earnings as defined by SSA. I just completed 29 such years and next May will have 30 years. Good luck!

Since you were not actually applying for SS, that might be why they didn't ask as it was irrelevant.

I have heard of them asking the person when the person applies for SS, if they have any other pensions.

 

[Chuckanut]

As far as I can see the main advantages of not paying into the SS system is a bigger take home check every pay period and a more generous pension benefit. IMHO, that extra take-home money should be invested in a few good index funds, but I suspect the temptation to spend it is great.

Personally, now that I have seen what happened in Detroit, and the financial mess in states like Illinois and Kentucky, I am very glad I paid into SS along with my monthly pension contribution. Diversification - Don't FIRE without it.

I know that the IRS is informed of my pension earnings . I imagine the pension payout information also tells the IRS if the person was exempt from SS contributions. I suppose it's easy to send that info to SS so that can enforce WEP and GPO.

 

[Rustic23]

This has to be one of the most unjust laws on the books. Person never works a day and they get a monthly payment equal to one half of their spouses SS. Teacher works her entire life, and get and is not entitled to the same SS. It makes no since to me.

 

[Sunset]

This has to be one of the most unjust laws on the books. Person never works a day and they get a monthly payment equal to one half of their spouses SS. Teacher works her entire life, and get and is not entitled to the same SS. It makes no since to me.

You and I should run for Congress and fix this...

I agree, I work 10 yrs and then 20 yrs earning SS, and they cut my 30 yrs of work down by 5 yrs.

The person that earns identical amount in 30 yrs at job earning SS gets full 30 yr value.

 

[txtig]

As far as I can see the main advantages of not paying into the SS system is a bigger take home check every pay period and a more generous pension benefit. IMHO, that extra take-home money should be invested in a few good index funds, but I suspect the temptation to spend it is great.

Actually, this isn’t true, at least not in Texas. The state withholds a percentage from teachers’ paychecks, just like Social Security does. Current withholding rate is 7.7%. So, there is no “extra take-home money” to be invested.

 

[Gumby]

Actually, this isn’t true, at least not in Texas. The state withholds a percentage from teachers’ paychecks, just like Social Security does. Current withholding rate is 7.7%. So, there is no “extra take-home money” to be invested.

It works the same way in Connecticut. Teachers here pay 1.45% of their salary into Medicare like everyone else. Additionally, they pay 8.25% into the teachers pension fund.

 

[txtig]

This has to be one of the most unjust laws on the books. Person never works a day and they get a monthly payment equal to one half of their spouses SS. Teacher works her entire life, and get and is not entitled to the same SS. It makes no since to me.

I agree as to the unfairness of the law. I can actually see limiting a spousal benefit, if you’re collecting a teacher pension. But, in the case where you’ve earned a benefit both in SS and the teacher pension plan, how does it make sense to limit the SS portion? You can’t be accruing benefits in both plans at the same time. You’re just receiving partial benefits from two separate plans.

 

[Gumby]

I think the GPO is more unfair. Consider my neighbor and me. We both had identical jobs, worked the same length of time and got paid exactly the same amount. Which means we both paid exactly the same amount into social security. His wife stayed home and did not work at all, which means she did not pay into social security. Mine worked as a teacher and did not pay into social security. When he retires, his wife gets 1/2 his social security. And when he dies, she gets 100% of his social security. When I retire, my wife gets no spousal social security. And when I die, she gets no survivor benefit. So, in effect, he gets 50% more social security than me while he is alive. Additionally, I have to buy a life insurance policy to cover my wife when I die. He doesn't. Forget the work history of our respective wives, my neighbor and I paid the same. We should get treated the same.

 

[Sue J]

Yep, DH worked for a county agency. He had 1.45% withheld for Medicare but did not pay into Social Security all those years. Instead he had 10% withheld for his public employees pension.

He never finished his SS credits so he doesn’t get any benefit there. But he also gets none of my SS as my spouse or survivor because of GPO.

We knew this throughout his career and we planned accordingly. I would love to see this repealed!

 

[MissMolly]

In KY we pay into both the state pension plan AND Social Security. It was a chunk of change coming out of each paycheck. But I'm glad now since I get to collect both

 

[Chuckanut]

I agree as to the unfairness of the law. I can actually see limiting a spousal benefit, if you’re collecting a teacher pension. But, in the case where you’ve earned a benefit both in SS and the teacher pension plan, how does it make sense to limit the SS portion? You can’t be accruing benefits in both plans at the same time. You’re just receiving partial benefits from two separate plans.

What would be unfair is doing away with WEP. Just because a person did not pay into SS for all their working life, does not mean they are entitled to the higher payout as people who are truly low-income.

https://www.creators.com/read/your-social-security/05/15/social-security-offsets

And because so many of you folks impacted by the laws don't understand them, you mistakenly think you are being singled out for Social Security reductions that don't impact anyone else. And you are simply wrong about that.
One offset is called the "windfall elimination provision." This is the one that impacts your own Social Security benefit. The other is called the "government pension offset," and it reduces any spousal benefits you might be due.

The key to understanding the WEP provision is to realize that the word "social" in Social Security means something. Unlike private and other public sector pension plans, there are social goals built into the Social Security program. One of those goals is to raise the standard of living of lower-income workers in retirement. This is accomplished through a benefit formula that is designed to give lower-paid workers a better deal than their more highly paid counterparts. Very low-paid workers could get a Social Security benefit that represents up to 90 percent of their earnings. This percentage is known as a "replacement rate." People with average incomes (the middle class) generally get a 40 percent replacement rate. Higher-income people get a rate around 30 percent.
The problem is that if you spend the bulk of your working life not paying into Social Security, you are automatically treated as a low-income person by the Social Security Administration's computers. That's because there are "zeros" on your Social Security earnings record for every year you spent in your non-Social Security job. SSA's records won't show that you were actually working at the other job and earning another pension. Instead, your Social Security earnings record simply shows gaps in your work history. So when figuring your Social Security retirement benefit, SSA's computers automatically use the formula intended to compensate a lower income person.

Personally, I think everybody should pay into SS on every dollar up to the limit, and thus eliminate this confusion.

 

[Chuckanut]

Actually, this isn’t true, at least not in Texas. The state withholds a percentage from teachers’ paychecks, just like Social Security does. Current withholding rate is 7.7%. So, there is no “extra take-home money” to be invested.

I never doubted that you had money taken out of your paycheck for pension benefits. So did I.

 

[bada bing]

What would be unfair is doing away with WEP. Just because a person did not pay into SS for all their working life, does not mean they are entitled to the higher payout as people who are truly low-income.

https://www.creators.com/read/your-social-security/05/15/social-security-offsets

Personally, I think everybody should pay into SS on every dollar up to the limit, and thus eliminate this confusion.

Amen.
If there weren't adjustments like WEP and GPO, as a non-government worker, I would want to suspend paying into SS after I reached the first bend point. I have worked for private employers who offered a pension my entire career, but was never offered the chance to count my pension as in-lieu of SS. I've paid FICA every year - at year 42 now, so 7 years of no credit. That is the flip side of WEP and GPO, people who don't have the opportunity to suspend part or all of their career from FICA. So no, in my view WEP and GPO aren't unfair at all, or if they are, then the bend points and 35 year maximum credited work history are equally unfair.

 

[Gumby]

Amen.
If there weren't adjustments like WEP and GPO, as a non-government worker, I would want to suspend paying into SS after I reached the first bend point. I have worked for private employers who offered a pension my entire career, but was never offered the chance to count my pension as in-lieu of SS. I've paid FICA every year - at year 42 now, so 7 years of no credit. That is the flip side of WEP and GPO, people who don't have the opportunity to suspend part or all of their career from FICA. So no, in my view WEP and GPO aren't unfair at all, or if they are, then the bend points and 35 year maximum credited work history are equally unfair.

WEP actually makes sense to me, for the reasons you and Chuckanut explain. I cannot see a justification for GPO, however, except as a gift to non-working spouses (who could be trust fund babies for all we know).

 

[rothlev]

WEP actually makes sense to me, for the reasons you and Chuckanut explain. I cannot see a justification for GPO, however, except as a gift to non-working spouses (who could be trust fund babies for all we know).

There are some unfair consequences of these provisions. say a low paid teacher with a small pension and a spouse with social security benefits. Two incomes in retirement, when the spouse dies the teacher gets nothing from his social security benefit, and has her poverty level pension left to live on . This happens more than you think.

There are teachers who worked two short careers and are badly hit with both a very small pension and negligible social security benefits , ie a nurse turned teacher who worked 15 years at both careers. staying in the social security covered job would have been way more financially advantageous than switching to public service. Not fair.

There are also teachers who never vest into the non -social security pensions and lose years of retirement credits as those years count neither for pension nor for social security.

 

[Teacher Terry]

If you work 30 years and get a good size pension than WEP is fine. It hurts people that worked in both systems for part of their career. My SS should be 800 yet it’s only 370/month. I worked for the state for 15 years and paid into the pension system. 8 years ago mine was 19k/year and 8 years later with raises it’s 21. My husband is in a similar situation. We chose to leave our full pensions to each other but that comes at a loss of 450/month.

 

[Sunset]

WEP has lots of problems, here is a made up example.

2 fellows work 20 yrs at the same job contributing to SS.
Guy A quits buys apple and google stocks and drinks beer until 65.
Guy B quits, buys some bonds and few years later gets a job that does not contribute to SS (teacher, etc).

Age 65 Guy A is worth $20 million dollars, Guy B is worth $400,000

When both retire Guy A gets more SS than Guy B. even though both have same SS history.

Gov't rationalizes:
because Guy B has his non-SS pension, he deserves less SS.
But they don't deduct from Guy A because he is a multimillionaire and earns 10x in yearly dividends than SS pays.

Guy B is punished for working longer.

 

[rothlev]

If you work 30 years and get a good size pension than WEP is fine. It hurts people that worked in both systems for part of their career. My SS should be 800 yet it’s only 370/month. I worked for the state for 15 years and paid into the pension system. 8 years ago mine was 19k/year and 8 years later with raises it’s 21. My husband is in a similar situation. We chose to leave our full pensions to each other but that comes at a loss of 450/month.

Exactly -- this in an example of where people who are not financially savvy could wind up with inadequate retirement income, especially when one passes. WEP is totally unfair in this scenario. WEP leaves plenty of retired teachers in a very bad place.

 

[Chuckanut]

WEP has lots of problems, here is a made up example.

2 fellows work 20 yrs at the same job contributing to SS.
Guy A quits buys apple and google stocks and drinks beer until 65.
Guy B quits, buys some bonds and few years later gets a job that does not contribute to SS (teacher, etc).

Age 65 Guy A is worth $20 million dollars, Guy B is worth $400,000

When both retire Guy A gets more SS than Guy B. even though both have same SS history.

Gov't rationalizes:
because Guy B has his non-SS pension, he deserves less SS.
But they don't deduct from Guy A because he is a multimillionaire and earns 10x in yearly dividends than SS pays.

Guy B is punished for working longer.

SS has never been based on the recipient's net worth. Even Bill Gates get SS as far as I know. Perhaps it should also be based on net worth. That will take an act of Congress.

High earners do get a smaller percentage of their contributions back compared to low earners. That is why we need WEP - for people who are higher earners but appear to be low earners based upon their SS contributions.

Guy B is not being punished for working longer. He gets less SS because he put less into it. Suppose Guy A had sold short Tesla in 2019 and lost all his money in a short-squeeze, should he get a bigger SS check than Guy B because he lost all his money?

I do agree that your example is made-up.

 

[samm]

Stagger Pension Timing to Minimize WEP Cost

Minimizing WEP Cost
I took my non-SS covered pension at 60 and SS at 70. This reduces the WEP "tax" because the first pension monthly benefit is lower, and delayed SS is higher, so when SS starts the WEP tax is on a smaller amount from non-SS pension.

Taking SS first, or both SS & other pension at same time, is worst WEP strategy.

Windfall Elimination Provision
https://www.ssa.gov/pubs/EN-05-10045.pdf

 

[finnski1]

SS has never been based on the recipient's net worth. Even Bill Gates get SS as far as I know. Perhaps it should also be based on net worth. That will take an act of Congress.

High earners do get a smaller percentage of their contributions back compared to low earners. That is why we need WEP - for people who are higher earners but appear to be low earners based upon their SS contributions.

Guy B is not being punished for working longer. He gets less SS because he put less into it. Suppose Guy A had sold short Tesla in 2019 and lost all his money in a short-squeeze, should he get a bigger SS check than Guy B because he lost all his money?

I do agree that your example is made-up.

No. Guy A and B contributed the same amount for 20 years each.
He did not put less into it.
Totally agree about the net worth aspect

 

[Sunset]

SS has never been based on the recipient's net worth. Even Bill Gates get SS as far as I know. Perhaps it should also be based on net worth. That will take an act of Congress.

...
Guy B is not being punished for working longer. He gets less SS because he put less into it. ..
I do agree that your example is made-up.

You seem to have missed the point: both put the same into SS

"2 fellows work 20 yrs at the same job contributing to SS."