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1 1 (February 28, 2024)

handle is hein.crs/goveolp0001 and id is 1 raw text is: Con gress bnaI Resear h Service Informning Ih legis19tive deba e sin ce 1914 Updated February 28, 2024 Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) Background Social Security is a work-related, federal insurance program that provides monthly cash benefits to workers and their eligible family members in the event of the worker's retirement, disability, or death. A worker's employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are taxable and creditable for program purposes. Although participation in Social Security is compulsory for most workers, about 6% of all workers in paid employment or self-employment are not covered by Social Security. Noncovered workers include state and local government employees covered by alternative staff-retirement systems; most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS) or other alternative retirement plan; employees covered by the Railroad Retirement system; domestic, election, or farm workers with earnings below certain thresholds; people with low levels of net earnings from self-employment; and certain nonimmigrants. The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) are two separate provisions that reduce regular Social Security benefits for workers and their eligible family members if the worker receives (or is entitled to) a pension based on earnings from employment not covered by Social Security. The Windfall EVim.nation Provision The WEP applies to most people who receive both a pension from noncovered work (including certain foreign pensions) and Social Security benefits based on fewer than 30 years of substantial earnings in covered employment or self-employment. In 2024, the amount of substantial earnings in covered employment or self-employment needed for a year of coverage (YOC) is $31,275. This amount is adjusted annually by the growth in average wages in the economy, provided a cost-of-living adjustment (COLA) is payable. The WEP affects retired- or disabled- worker beneficiaries and their eligible dependents. However, it does not affect survivor beneficiaries. The Social Security benefit formula is progressive, replacing a greater share of career-average earnings for low-paid workers than for high-paid workers. The regular benefit formula applies three factors-90%, 32%, and 15%-to three different brackets of a worker's average indexed monthly earnings (AIME), which is a measure of career-average earnings in covered employment or self- employment. The result is the primary insurance amount (PIA), which is the worker's basic benefit before any adjustments are made for factors such as COLAs, early retirement, or delayed retirement. For workers who become eligible for benefits in 2024, the PIA is determined based on the formula in Table 1. The dollar amounts in the table, known as bend points, are adjusted annually for average earnings growth. Table I. Social Security Benefit Formula for Workers Who Attain Age 62, Become Disabled, or Die in 2024 Factor Average Indexed Monthly Earnings (AIME) 90% of the first $I,174 of AIME, plus 32% of AIME over $1,174 and through $7,078, plus 15% of AIME over $7,078 Source: CRS, based on Social Security Administration, Benefit Formula Bend Points. For people with 20 or fewer YOCs who become eligible for benefits in 2024, the WEP reduces the first factor from 90% to 40%, resulting in a maximum reduction of $587 (90% of $1,174 minus 40% of $1,174). For each year of substantial earnings in covered employment or self-employment in excess of 20, the first factor increases by 5%. For example, the first factor is 45% for those with 21 YOCs. The WEP factor reaches 90% for those with 30 or more YOCs and at that point is phased out. The WEP includes a guarantee that the reduction in the benefit amount caused by the WEP formula can never exceed more than one-half of the noncovered pension. Thus, for workers who become eligible for benefits in 2024, the maximum reduction under the WEP may be less than $587. In addition, because the WEP reduces the initial benefit amount before it is reduced or increased due to early retirement, delayed retirement credits, COLAs, or other factors, the difference between the final benefit with the WEP and the final benefit without the WEP may be less than or greater than $587. However, the maximum WEP reduction is still limited to 50% of the noncovered pension. How Many People Are Affected by the WEP? As of December 2023, about 2.1 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP. Nearly 2.0 million of those affected were retired- worker beneficiaries, which was about 4% of the entire retired-worker beneficiary population. The remaining affected individuals were disabled-worker beneficiaries and eligible family members of retired- or disabled-worker beneficiaries. Legislative Hitory and Rationale The WEP was enacted in 1983 as part of major amendments designed to shore up the financing of Social

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