Teacher’s Retirement and Social Security

Teachers and social security benefits

“Can I get teacher’s retirement and Social Security?” That question is asked almost every time I speak on Social Security.

There’s no doubt this can be a complex topic and most of the teachers that I’ve talked to have seen lots of conflicting information.  Let’s clear up the confusion and take a closer look at the rules on teacher’s retirement and Social Security.

Social Security Rules For Teachers

In the 1970s and 1980s, laws were passed that amended the Social Security rules to keep individuals from “double dipping” – receiving both a Social Security benefit and a pension from a job 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 your full Social Security benefit: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

These provisions reduce (or eliminate) benefits for those who worked in a job in which they:

  1. Qualified for a pension and
  2. Did not pay Social Security taxes.

This is not limited to teachers, but often includes other public sector workers like firefighters, police officers and numerous other state, county and local employees.

Employment not covered by Social Security

In the beginning, Social Security didn’t cover any public sector employees. However, over the years, many states dropped their own pension plans and adopted coverage agreements with the Social Security Administration. Today there are still 15 states that participate solely in their own pension plans instead of Social Security.

illustration showing states where teachers do not pay social security tax

Those states are:

  • Alaska
  • California
  • Colorado
  • Connecticut
  • Georgia (some school districts)
  • Illinois
  • Kentucky (some school districts)
  • Louisiana
  • Maine
  • Massachusetts
  • Missouri
  • Nevada
  • Ohio
  • Rhode Island (some school districts)
  • Texas

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 maddening at the same time. That’s especially true if you’ve paid into the Social Security system for enough quarters to qualify for a benefit (which is fairly common among teachers).

Many teachers find them self in this situation for a variety of reasons. For some, teaching is a second career, after they’ve spent years working in a job or a state where Social Security taxes were withheld. Others may have taught in a state where teachers do participate in Social Security. For example, teachers in my town, which is divided between the states of Arkansas and Texas, could qualify for both. If they worked in Arkansas (where teachers do participate in Social Security) for at least 10 years and then taught in Texas (where teachers don’t participate in Social Security), they would qualify for both Social Security and the Teacher Retirement System of Texas.

If You Qualify for Both

This may surprise you but your Social Security statement does not reflect any reduction in benefits due to your teacher’s pension. They’ll wait until you file to tell you what the reduction is if you qualify for both Social Security and a teachers pension.

Understanding if a reduction in benefits will apply to you, and how much that will be, does not have to wait until you file for Social Security. You can get a good idea today. It starts by understanding the key differences between the two rules which may reduce your benefit amount.

  • The Windfall Elimination Provision (WEP)
  • The Government Pension Offset (GPO)

From a very high level you should understand that the WEP rule only applies to individuals who are eligible for 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 substituted with a new calculation that results in a lower benefit amount.

It would be easy to write a multipage essay on the WEP, but the necessary components can be distilled to 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.

chart showing how covered earnings reduce the impact of the windfall elimination provision for teachers

Source: Devin Carroll, Data: Social Security Administration

This phase-out of the WEP reduction offers a great 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 WEP 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 taking a closer look.

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

Government Pension Offset

The nitty-gritty of the Government Pension Offset (GPO) is 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 (2/3) of your pension.

As an example, let’s say Michael worked for 30 years as a teacher in California (one of the 15 states where schoolteachers are not covered by Social Security) and his wife was an accountant. 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 three years later.

Upon her death, Michael learned that because of his CalSTRS pension 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 a measly $300 per month. Here’s the math:

Social Security Government Pension Offset Example with CalSTRS pension

Source: Devin Carroll

Some would say that’s not fair and I think they have a compelling point. Why? In a case like this the GPO only applies because of Michael’s chosen profession. This is effectively a penalty for teaching (what some call the hero’s penalty). If he had been a pharmacist instead of working in education, he would have been eligible to receive the full $2,200 per month.

If You Only Qualify for TRS Pension

If you have never paid Social Security tax, and only qualify for your teacher’s retirement, it’s likely you’ll never receive a Social Security benefit. Although this makes perfect sense to some, others think it’s pretty 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.

These intricate Social Security regulations and how differently they may affect a worker’s retirement income make it critical that you plan ahead and prepare. Before you make your elections on your teacher’s 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 on these rules so you can make best decisions for you and your family.