Social Security Administration

1. Social Security Administration An Overview of the Impact of NOT Paying Social Security Taxes as a State Employee Windfall Elimination Provision Government Pension Offset

2. Today’s Objectives Fifteen minutes from now you will know: • How my retirement benefits are calculated • If I am eligible for Spouse or Survivor retirement benefits • The impact of potential offsets on retirement benefits

3. And Those Pesky Offsets ■One Reduces your own benefit ■ The other reduces any benefits you might be eligible for on your spouse’s Social Security record ■ You will learn why they were enacted

4. Windfall Elimination Provision Social Security is not a pension plan but a Social Insurance plan. As such, it has “social” goals, among which is to: Raise the standard of living for lower income workers

5. Non Covered Earners Look Poor The addition of all those “zero” years give non covered earners an artificially low average wage.

6. But you’re not “low wage earners” • A non covered employee is not the kind of low-income worker the weighted benefit formula is trying to compensate.

7. The Other Offset • It’s called “Government Pension Offset” (GPO) • GPO takes two-thirds of your non covered pension and deducts that from any spouse/survivor benefit you might be due

8. Social Security: Yesterday • One spouse worked • The other spouse did not work outside the home • One received a Social Security check • The other received a “dependent” spouse benefit

9. Social Security: Today • Both spouses work and pay into Social Security • Since both work neither is “dependent”

10. Social Security Statement It is inaccurate if you are a non covered employee

11. Two Important Points • If you have 40 credits you will be eligible for a monthly retirement benefit • If you have paid Social Security taxes for fewer than 30 years, your benefit will be reduced by WEP or GPO

12. How is this Done ■A weighted benefit formula ■ Lower income workers receive a higher rate of return

13. How Social Security Determines Your Benefit Social Security benefits are based on earnings Step 1 Your wages are adjusted for changes in wage levels Step 2 Find the monthly average of your 35 highest earnings years Step 3 Result is “average indexed monthly earnings”

14. Retirement Benefit Computation Example If your average monthly earnings are = $5,200 Then your monthly benefit would be = $2,001 Average Monthly Earnings $5,200 90% of First $761 = $685 32% of Earnings over $761 through $4,586 $3,825 = $1,224 ($4,586-$761 = $3,825) 15% of Earnings over $4,586 $614 = $92 ($5,200-$4,586 = $614) $5,200$2,001

15. Modified Formula The Windfall Elimination Provision says we must refigure your benefit giving you the 40% (average) return rate instead of the 90% (low income) return rate.

16. Retirement Benefit Computation Example with WEP If your average monthly earnings are = $5,200 Then your monthly benefit would be = $1,620 Average Monthly Earnings $5,200 40% of First 761 = $304 32% of Earnings over $761 through $4,586 $3,825 = $1,224 ($4,586-$761 = $3,825) 15% of Earnings over $4,586 614 = $92 ($5,200-$4,586 = $614) $5,200$1,620

17. Impact of the Windfall Elimination Provision WEP Recognizes the more years a non covered wage earner has paid Social Security taxes, the closer you should be to the standard benefit formula √ 30 Years = standard formula with 90% as return rate √ 21-30 years = modified formula with return rate between 40-85% √ 20 years or less = full WEP formula with 40%

18. WEP Effective Date • First Month Entitled to Both Social Security and Pension Based on Non Covered Employment

19. Monthly Pension Amount • Life expectancy tables determine a monthly pension amount • For covered and non covered employees = pension is prorated

20. Key to Understanding GPO • Dependent Benefits • Consider history of spouse’s benefits under Social Security

21. Unless One was a Non Covered Employee…Before GPO • If one spouse was a non covered employee, they received their own non covered pension AND a “dependent” Social Security benefit.

22. Dependent Retirement Benefit Computation Example with GPO The reduction is two-thirds (2/3) of the non covered government pension. Example: Employee is getting a $600 state pension. This employee is eligible for a $500 spousal benefit from Social Security 2/3 times $600 is $400 $500 minus $400 is $100 This employee would get a $100 Social Security benefit.

23. For More Information ■ www.socialsecurity.gov ■ 1-800-772-1213 ■ Local Social Security Office