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Social Security Tretments On Pensions
I. Windfall Elimination Provision, WEP
Teachers and government workers who also have earnings from jobs that are paid into Social Security.
Non-covered pensions.
The WEP reduces the worker’s PIA; therefore, the dependent’s Social Security benefit amounts are reduced.
It is based on the number of years of substantial earnings the worker has in Social Security covered employment.
1). Retirees eligible to collect Social Security benefits and a non-covered pension, determine how many years of substantial earnings they have.
2). The total number of years with substantial earnings is added up to determine the corresponding PIA adjustment percentage.
When calculating the PIA, the amount of AIME up to the first bend point is multiplied by 90%. In the WEP PIA calculation, this percentage is replaced by the PIA adjustment percentage corresponding to the total number of years of substantial earnings.
II. Government Pension Offset, GPO
The person’s benefit as a spouse, widow, or widower is offset dollar for dollar by the amount of his or her own retirement benefit.
It was enacted to treat government employees who receive a pension and do not pay Social Security taxes on their earnings, similar to those who work in the private sector and pay Social Security taxes.
Also, to accomplish the same purpose as the offset under dual entitlement provision.
Under the dual entitlement provision, the reduction is dollar for dollar whereas under GPO there is a two-third reduction.
Social Security will calculate the GPO reduction as if they had chosen to get monthly benefit payment from the pension.
- If the worker receives a government pension that is not based on earnings.
- If the worker is a federal, state, or local government employee whose government pension is based on a job where he or she was also paying social security taxes; and
- He or she filed for and was entitled to spouse’s, widow’s or widower’s benefits before April 1, 2004; or
- His or her last day of employment (that his or her pension is based on) is before July 1, 2004; or
- He or she paid Social Security taxes on his or her earnings during the last 60 months of government service.
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