How Teacher’s Retirement and Social Security Benefits Work Together

“Is it true that I don’t get my Social Security benefit because I’m a teacher?” I hear that question almost every time I speak on Social Security.

TRS and Social Security

If you’re a teacher, you’ve probably seen lots of conflicting information on this topic. There’s no denying that it’s a complex issue, so here’s a closer look at the rules on teacher’s retirement and Social Security.

In the 1970s and 1980s, laws were passed that amended the Social Security Act in an effort to keep individuals from “double dipping” – receiving both a Social Security benefit and a pension from work where they did not pay into the Social Security system. The results of these amendments are two rules that could impact your ability to claim a full Social Security benefit: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

These provisions reduce benefits for those who worked in a job in which they qualified for a pension and did not have to pay Social Security taxes. This is not limited to teachers, but can also include firefighters, police officers and numerous other state, county and local employees.

Employment not covered by Social Security

Not all public sector employees are covered by Social Security, and in fact, initially Social Security didn’t cover any of these employees. However, over the years, many states abandoned their own pension plans and adopted coverage agreements with the Social Security Administration. Today there are 15 states that participate solely in their own state-run pension plans instead of Social Security.teachers and social security coverage

If you are a teacher in one of those states, the rules for collecting a Teacher’s Retirement System (TRS) pension and Social Security can be confusing and intimidating. That’s especially true if you’ve also had a job in which you paid into the system for enough quarters to qualify for a Social Security benefit, which is fairly common among teachers.

For many, teaching is a second career, after they’ve spent years working in a job or a state where Social Security taxes were withheld. For example, teachers in my town, which is divided between the states of Texas and Arkansas, may qualify for both. If they worked in Arkansas (where teachers participate in Social Security) for at least 10 years and then taught in Texas (where teachers do not participate in Social Security), they would qualify for both Social Security and the Teacher Retirement System of Texas.

If You Qualify for Both

Since your Social Security statement does not reflect the reduction in benefits thanks to your state-run teacher’s pensionit’s hard to know what to expect if you qualify for both.

The WEP rule only applies to individuals who are entitled to a Social Security benefit based on their own work history and have a pension from work where they did not pay Social Security tax. Meanwhile, the GPO rule only applies to individuals who are entitled to a Social Security benefit as a survivor or spouse and have a pension from work in which they did not pay Social Security tax.

Here’s a look at how each rule would impact your benefit.

Windfall Elimination Provision

The Windfall Elimination Provision (WEP) is simply a recalculation of your Social Security benefit if you also have a pension from “non-covered” work (no Social Security taxes paid). The normal Social Security calculation formula is thrown out and substituted with a new calculation that results in a lower benefit amount. According to the Congressional Research Service, as of December 2014, about 1.6 million Social Security beneficiaries were affected by the WEP.

It would be easy to write a three-part essay on the WEP, but the necessary components can be consumed in a few simple points:

  • The maximum Social Security reduction will never be greater than one half of your pension amount. This is capped at a monthly reduction of $413 (for 2015).
  • If you have more than 20 years of substantial covered earnings (where you paid Social Security tax), the impact of the WEP begins to diminish. At 30 years of substantial covered earnings, the WEP does not apply.

Social Security windfall elimination provision years of substantial earnings chart

Source: Devin Carroll, Data: Social Security Administration

This phase-out of the WEP reduction offers a planning opportunity if you have worked at a job where you paid Social Security tax. For example, if you worked as an engineer for 20 years before you began teaching, you may be able to do enough part time work between now and when you retire to completely eliminate the monthly reduction.

Would it be worth it? If you consider how much more in benefits you could receive over your retirement lifetime, it could be worth $100,000 in extra income over a 20-year retirement. Obviously, not everyone has the option of accumulating enough years to wipe out the big monthly WEP reduction. But for those who do, or can get close, it’s worth considering.

For more information, see the Social Security Administration’s WEP Benefit Calculator and other resources.

Government Pension Offset

The mechanics of the Government Pension Offset (GPO) are simple. If you meet both of requirements for the GPO – you are entitled to a Social Security benefit as a survivor or spouse and have a pension from work where you did not pay Social Security tax – your Social Security survivor or spousal benefit will be reduced by an amount equal to two-thirds of your pension.

As an example, let’s say Michael worked for 30 years as a schoolteacher in California (one of the 15 states where teachers are not covered by Social Security) and his wife was a pharmacist. Upon retirement, he began receiving his California teacher’s retirement pension of $3,000 per month. His wife retired at the same time and filed for her Social Security benefits of $2,300 per month. Sadly, she passed away a short four years later.

Upon her death, Michael learned that he would not be eligible to receive a normal Social Security survivor’s benefit. Thanks to the GPO his survivor’s benefit was reduced to $300 per month. Here’s the math:

Social Security Government Pension Offset Example Image Chart

Source: Devin Carroll

Some would say that’s not fair and I think they have a valid point. Why? The GPO only applies because of Michael’s profession. This is effectively a penalty for public service (what I call the hero’s penalty). If he had been an accountant instead of working in education, he would have been eligible to receive the full $2,200 per month. (Of course, under those circumstances he would have paid into Social Security during his career as an accountant.)

If You Only Qualify for TRS Pension

If you have never paid a penny of Social Security tax, most likely you’ll never receive a Social Security benefit. Although this makes perfect sense to some, others think it’s unfair that this isn’t true for everyone. For example, if you had chosen to stay at home as the household manager, you would not have paid into the Social Security system. However, you would be eligible for spousal and survivor benefits. Meanwhile, in certain states, teachers who never pay into Social Security won’t receive any benefits. (But of course in this case, teachers and other public sector employees may have pension benefits that a stay-at-home spouse would not).

These intricate Social Security regulations and how differently they may affect a worker’s retirement income make it critical that you plan ahead. Before you make your elections on your TRS pension, you must consider how your monthly cash flow would change with a spouse’s death.

As a teacher, you have plenty to keep up with and these complex rules on Social Security don’t make it any easier. But don’t let it get to you. Instead, get informed so you can make best decisions for you and your family.

In addition to my blog, this article was also published on Nerdwallet.