If you’ve lived in the United States for any length of time, you’re likely familiar with our federal pension system: Social Security. If you’ve worked in the United States for 10 years (40 quarters non consecutive) you are eligible for this income benefit at retirement. But let’s say you are an employee of a public university in the state of Ohio (this applies to several other states as well, so keep reading). For retirement you pay into a state pension system and not into Social Security. If you never hold a position in which you contribute to Social Security, this doesn’t create an issue because all your retirement benefits come from the state pension system to which you belong. A unique situation occurs if you are entitled to Social Security from private employment, but then choose to take a position with a public institution. Before 1983, if your career took you in this direction, you would be eligible for two pensions, one from the state and one from the federal government. However, because of the way Social Security was calculated, this led to some people receiving full benefits from both systems, regardless of how many years above the 10 year minimum they contributed to Social Security. In an effort to minimize what was considered, “double-dipping” the Windfall Elimination Provision was passed into law.
This law states, if you have several years of work history in which you did not have substantial earnings that were Social Security taxed because of contributing to a “non covered” state pension, your Social Security can be reduced. The amount of the reduction depends on several factors including earnings, when you chose to turn on Social Security, and amount of years contributed. The WEP does not affect all people. For example, if you have more than 30 years of substantial earnings that were covered under Social Security, you are not affected. If you are unsure of how the WEP may or may not affect you, please reach out via the contact button below and we would love to have a conversation with you!
“If you paid Social Security taxes on 30 years of substantial earnings, WEP does not apply to you.” (SSA)
Social Security. SSA. (n.d.) from https://www.ssa.gov/benefits/retirement/planner/wep.html
University Wealth Advisors works with faculty/staff of public and private universities in the United States. This includes insurance, retirement planning, social security planning, and investment management. Check out our other posts or contact us with any questions!