Testimony Regarding the Windfall Elimination Provision of Social Security

1
Testimony Regarding the Windfall Elimination
Provision of Social Security

• Presented by Pamela Marks
• to the House Committee on Ways and Means Social
  Security Subcommittee
• October 8, 2008

2
Windfall Elimination Provision (WEP)

• Enacted by Congress in 1983 to adjust Social
  Security benefits for retirees receiving a
  pension under both Social Security and the public
  sector.
• Logic Retirees receiving a small pension under
  Social Security because of limited years in the
  system receive too high of an income
  redistribution which was intended for low-income
  workers.

3
How the WEP Works

• Normally, monthly Social Security benefits are
  calculated on average monthly income using the
  following formula
• First 711(.90) next 3577(.32)
  excess(.15).
• The WEP reduces the proportion applied to the
  first 711 from 0.90 to 0.40 for retirees with 20
  years or less of substantial earnings under
  Social Security who have a public sector pension.

4
Exceptions

• For retirees having over 20 years of substantial
  SS earnings, benefits are reduced by less, based
  on a sliding scale.
• Maximum benefit reduction is 355.50.
• Reduction cannot be more than half of the monthly
  benefit from the second pension.

5
Problems with the WEP

• The reduction from 0.9 to 0.4 applies to all
  retirees having 20 years or less of substantial
  earnings in Social Security, regardless of their
  SS or state income or number of years in SS
  (besides the exceptions noted).
• It angers many affected retirees who do not
  understand the provision or how SS works.
• May discourage people from leaving the private
  sector in favor of civil service jobs, such as
  teaching jobs.

6
Problems continued

• Low-income workers under SS and the public sector
  will be even worse off because of the WEP.
• Example comment from www.washingtonwatch.com
  The reduction applied by the WEP will leave my
  combined pension and SS about 30-40 above the
  poverty level for 2. What a windfall!

7
Suggested Reform

• Support the Public Servant Retirement Protection
  Act (PSRPA, HR 4391). This bill would recalculate
  benefits using the standard SS formula on all
  earnings then each retiree would receive SS
  benefits that were proportional to the time
  workers were under the SS system.

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Benefits of the PSRPA

• SS benefits will be calculated the same for all
  retirees, so more equitable.
• Retirees will receive benefits proportionate to
  only the time they contributed to the SS system.
• Low income workers who contributed to SS will
  receive some income redistribution.
• May encourage more workers to go into the public
  sector.

9
Problems with the Act

• Would often result in greater benefits going to
  people with two pensions this would cost the
  government between 4.6 and 7 billion over the
  next 10 years (but less than other proposed
  reforms).
• The reforms may encourage government to promote
  mandatory SS coverage for public workers, many of
  whom do not want to be part of the system.
• Calculation of earnings and years worked under
  the public and private sectors might be
  complicated and controversial.

10
Thank you!

• Thank you for the opportunity to provide this
  testimony on the behalf of affected U.S. public
  servants.