Windfall Elimination Provision
How the Windfall Elimination Provision (WEP) can affect you
If you receive a foreign pension, or a pension from work in the United States not covered by Social Security (such as a federal, state or local government agency in the US) or have worked in a foreign country, your Social Security benefits may be reduced by application of the "Windfall Elimination Provision" (WEP).
WEP was created by Public Law 98-21 in 1985. WEP was instituted as a result of the progessive method by which US Social Security benefits are computed. Persons with less earnings on their record receive a comparatively larger percentage of their average income. Under normal computations a beneficiary who paid relatively low Social Security taxes and who is drawing a separate pension may have what is perceived as an unfair advantage in their benefits. Before 1983, people whose primary job wasn't covered by Social Security had their benefits calculated as if they were long-term, low-wage workers. They had the advantage of receiving a Social Security benefit representing a higher percentage of their eanrings, plus a pension from a job for which they hadn't paid Social Security taxes.
Persons receiving US Social Security benefits and who have been employed in work for which they did not pay US Social Security taxes may see their US Social Seceurity benefits partially reduced (up to 50%) due to WEP rules. WEP is applied starting from the moment you are entitled to both US and foreign benefits even if you do not actually receive those benefits.
If you have payed US Social Security taxes for more than 30 years WEP does not apply to you. If you have worked less than 30 years in the US, WEP is applied on a sliding scale (reducing your US benefits from 0% to 50%) depending on your cumulated US and foreign working years and the benefits you receive at retirement age. If you are an American citizen residing abroad and are receiving US Social Security benefits but continue working in a foreign country and/or received foreign social security benefits, your US benefits may be reduced according to the WEP rules. For retired Americans living in the USA, WEP is applied the same way. Your Social Security benefits are reduced if you receive benefits from a job that was not covered, such as a federal or local government agency.
Calculation of the WEP reduction applied to your US Social Security benefits is done by a rather complicated formula which takes into account your US benefits which itself is a complicated calculation based on your earnings for each year of your working life. In addition there are corrections for early or delayed retirement.
Social Security benefits are based on your average monthly earnings adjusted for average wage growth. Your earnings are separated into three amounts and these amounts are multiplied by three factors to compute your full Primary Insurance Amount (PIA). For example, a worker who turns 62 in 2018, the first $895 of average monthly earnings is multiplied by 90 percent; earnings between $895 and $5,397 by 32 percent; and the balance by 15 percent. The sum of the three amounts equals the PIA which is then decreased or increased depending on whether you start receiving benefits before or after the current full retirement age.
When applying the WEP provisions, the 90 percent factor in the PIA formula is reduced for workers who reached age 62 or became disabled between 1986 and 1989. For people who reach 62 or become disabled in 1990 or later, the 90 percent factor is reduced to as little as 40 percent. Note that WEP does not apply if you have "substantially" contributed to Social Security for 30 years or more, and is alleviated if you have contributed to Social Security for more than 20 years.
NOTE RE ISRAEL: The Social Security Administration has had varying interpretations over the years, but presently considers the Israeli old-age NII pension (Bituach Leumi), which is automatically paid to all old-age residents of Israel whether or not they have worked in the country, to NOT trigger WEP reductions in US Social Security payments.
US Social Security Windfall Elimination Provision fact sheet (pdf): www.ssa.gov/pubs/EN-05-10045.pdf
Social Security webpage about WEP: www.ssa.gov/planners/retire/wep.html
WEP calculation chart: www.ssa.gov/planners/retire/wep-chart.html
What is ACA doing about WEP?
Much of the discussion about WEP repeal is related to its effects on domestic (US) pensions. However, if WEP were repealed it would be of direct benefit to many retired Americans residing abroad. If you have a testimonial about how WEP has affected you, please let ACA know about it here.
ACA, similar to groups in the USA, is trying to reduce or remove the effects of WEP. In 2016, the House Ways and Means Committee pulled its consideration of a WEP reform bill (H.R. 711) which was promoted by the National Active and Retired Federal Employees Association (NARFE). After that, another bill was proposed (H.R. 973). In the Senate, Ohio Senator Sherrod Brown (D-OH) introduced the Social Security Fairness Act (S. 915) on April 24, 2017. If passed, this bill would repeal WEP. A companion bill (H.R. 1205) was introduced in the House on Feb. 21, 2017.
Links for these bills:
This ACA webpage was updated in May 2018