Windfall Elimination Provision
Released: March2022
BACKGROUND: The Windfall Elimination Provision (WEP) is a formula used to adjust Social Security worker benefits for people who receive “non-covered pensions” and qualify for Social Security benefits based on other Social Security–covered earnings. a A non-covered pension is a pension paid by an employer that does not withhold Social Security taxes from your salary, typically, state and local governments or non-U.S. employers.
Congress passed the WEP to prevent workers who receive non-covered pensions from receiving higher Social Security benefits as if they were long-time, low-wage earners. b In2020, the WEP applied to 3.0percent of all beneficiaries (1.95million beneficiaries out of 64.85million total beneficiaries).
HOW THE WEP WORKS: Social Security benefits are calculated by applying three different percentages to a person's lifetime average indexed monthly earnings (AIME) and adding them up to obtain the worker's monthly benefit (primary insurance amount (PIA)) at full retirement age. For most beneficiaries in2022, the PIA equals the sumof:
- 90percent of the first $1,024 of AIME,plus
- 32percent of AIME over $1,024 and through $6,172,plus
- 15percent of AIME over$6,172.
The WEP PIA replicates the regular PIA but scales down the first percentage from 90percent to 40percent in increments of five percentage points for workers with less than 30years of coverage (YOCs). Thus, workers with 30or more YOCs have a first PIA factor of 90percent, workers with 21–29YOCs have a first PIA factor between 45–85percent, and workers with 20YOCs have a first PIA factor of 40percent.
However, the difference between the regular PIA and the WEP PIA cannot exceed one-half of the monthly non-covered pension. This provision is known as the WEP guarantee and results in a smaller WEP reduction to the Social Security benefit than otherwise would have applied.
| WorkerA | WorkerB | WorkerC | |
|---|---|---|---|
| YOCs | 20 | 25 | 30 |
| First PIA factor | 40% | 65% | 90% |
| Regular PIA | $1,234 | $1,362 | $1,522 |
| WEP PIA | $722 | $1,106 | $1,522 |
| Regular PIA minus WEPPIA | $512 | $256 | $0 |
| Monthly non-covered pension | $800 | $600 | $400 |
| WEP guarantee (½ non-covered pension) | $400 | $300 | $200 |
| WEP reduction | $400 | $256 | $0 |
| Social Security benefit | $834 | $1,106 | $1,522 |
a. Worker benefits are paid to an insured worker based on the worker's own earnings history. Beneficiaries eligible for spouse or survivor benefits who also receive a non-covered pension are affected by another provision, the Government Pension Offset(GPO).
b. Brown, JeffreyR., and Scott Weisbenner. 2012. “The Distributional Effects of the Social Security Windfall Elimination Provision.” National Bureau of Economic Research Working Paper#18342.
