Q&A: Pensions and the windfall elimination provision

Dear Liz: As a faculty member who was only recently allowed to participate in our state’s public employees’ retirement system, I will have a very small pension. I’m told that Social Security will then reduce my benefit by up to 50% as a result of the so-called windfall elimination provision. Can you tell me how this is legal?

Answer: Many people affected by Social Security’s windfall elimination provision are outraged that their benefits will be reduced. Before the provision was enacted in 1983, though, people who paid less into the Social Security system wound up getting an outsized benefit.

Here’s why. Social Security is designed to replace more of a worker’s income the less he or she makes, with the understanding that saving for retirement is harder the lower your income.

When you get a pension from an employer who doesn’t pay into the Social Security system, but you also qualify for Social Security benefits from other jobs, your Social Security earnings record can look as if you were a long-term, low-wage worker even when you’re not. Without the windfall elimination provision, you could wind up with a Social Security check that replaces more of your income than you would have received had you only worked in jobs covered by Social Security.

How much your benefit will be reduced depends in part on how many years you worked in those other jobs — the ones that were covered by Social Security. The longer you worked at jobs covered by Social Security, the less the windfall elimination provision affects you, as long as you had “substantial earnings” from those jobs. The amount that’s considered substantial varies by year, ranging from $3,300 in 1974 to $21,750 this year. You’ll experience the maximum 50% reduction if you have 20 or fewer years of substantial earnings. If you have 30 years of such earnings, the provision doesn’t affect you at all.

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