Government Pension Subject to AND Not Subject to SS

Questions & AnswersCategory: WEP & GPOGovernment Pension Subject to AND Not Subject to SS
tmack asked 3 months ago

If the government pension is based upon employment subject to social security and also not subject to social security, how does this effect the WEP and GPO? Specifically, TRS employment in non-SS districts and in SS employment?

Devin Carroll replied 3 months ago

Hey tmack,

I’d like to claify a couple of things so I can better understand your question…

1) You’ll be receiving a pension from TRS?
2) Some of your employment that led to the pension was subject to SS tax and some was not?

tmack replied 3 months ago

Yes, receive a TRS pension. TRS pension derived from both covered and non-covered employment. How would SSA know how much of pension is from each category? Does it matter for WEP?

2 Answers
tmack answered 3 months ago

Yes to both. We will receive a TRS Pension. TRS Pension is based upon work performed in covered employment AND non-covered employment (some Texas entities participate in social security, some do not). So, for WEP purposes especially, how much of the TRS pension is considered to be from a non-covered employer for purposes of WEP limitation?

Devin Carroll answered 2 months ago

Tmack,

You’ve raised an interesting question! Frankly, this is one that has come up before and I ran into dead ends trying to research the answer. It’s not an issue that comes up very often, but when it does, it’s crucial to understand the calculation.

For other readers who may be coming across this Q&A later, and do not have a clear understanding of how the WEP and GPO works, here are a few resources that I strongly encourage you to check out before proceeding.

The Best Explanation of the Windfall Elimination Provision

What You Need to Know About The Government Pension Offset

Video: Social Security for Educators (and other public servants)

The Government Pension Offset

For background, the GPO is a reduction to spousal or survivor benefits if you have a pension where you did not pay SS taxes. The reduction is 2/3 of your pension amount! For example, if your pension is $3,000, the SSA will subtract nearly $2,000 from any spousal or survivor benefits before you are paid. This large reduction often completely wipes out any benefit for which you are eligible.

If you have a pension from ‘mixed’ earnings, the entire pension amount should not be used in calculating the 2/3 reduction! Only the amount that came from the months where you did not pay Social Security taxes should be used.

The Social Security rules make this clear: "Some entities may pay a pension based on both government employment and private employment. For pensions based on a combination of federal, state, or local government employment and private employment (i.e., non-government employment), GPO applies only to the portion of the pension based on government employment. [emphasis added]

For example, when Denise filed for benefits they told her that her GPO reduction would be $1,980 (2/3 of her $3,000 pension). Instead, they should have told her that her spousal or survivor benefits would be reduced by $990. That’s a big difference!

What they told her

$3,000 – Total Pension

x 2/3 Reduction

$1,980 Reduction to spousal or survivor benefits

What they should have told her

$1,500 – Prorated pension from noncovered work

x 2/3 Reduction

$990 Reduction to spousal or survivor benefits

If Denise’s monthly survivor benefit should be $2,200 at her full retirement age, the proper calculation of the GPO means that she would still receive $1,210. However, if it was not calculated with the prorated pension, she would only receive $220!

Understanding how this rule works could be an important part of successful retirement planning. For example, someone in Denise’s position could file for a survivor benefit only and switch to their own benefit at age 70. This would mean that their own benefit amount would be substantially higher due to the increases for the delayed filing.

The Windfall Elimination Provision

The Windfall Elimination Provision is a reduction to an individual’s own Social Security benefit and applies to individuals who have a pension from work where they did not pay Social Security tax. The correct proration of a pension is also important for calculating the impact of the WEP. This is especially critical for individuals who have more covered years than they do non-covered years. 

For example, let’s assume that Denise spent 24 years working at Austin ISD (where she did pay SS tax), and 6 years at Texarkana ISD (where she did not pay SS tax). Assuming that her TRS pension is $3,000, the portion of her pension from non-covered earnings would be $600. 

One of the provisions of the Windfall Elimination Provision is the ‘WEP Guarantee‘ which limits your pension to no more than 1/2 of your noncovered pension. In Denise’s case, the maximum reduction would be $300. Additionally, the impact of the WEP would be lowered even more due to "years of coverage" which are also known as "substantial earnings." These are earnings that were subject to Social Security taxes and met the limits. Workers who have 30 years of coverage are fully exempt from the Windfall Elimination Provision (WEP). Workers with 21 to 29 YOCs are eligible for a partial exemption. The SSA has a chart of the required earnings on their website

How To Prorate Your Pension

The SSA seems to make it simple in verifying the amount of your prorated pension. In their manual they say, "Request verification from the employer or pension-paying agency showing the amount of the pension based on only the government employment." However, you may run into issues with your pension paying agency giving you this information. Many of them just don’t keep notes like these. If that’s the case, you’d want to get your employment records, SSA earnings history, and use the following formula to prorate it yourself.

Pension From Non-Covered Work = Total pension times months of non-covered work (post-1956) divided by the total months used to calculate pension

For example, Denise’s pension is $3,000. Her months of non-covered work were 180 (15 years). The total months used to calculate pension was 360 (30 years). This calculation would appear as follows:

$3,000 x 180 / 360 = $1,500 Amount of pension that is non-covered and thus excluded from the WEP and GPO calculations.

For months with both types of earnings, a month that contains both covered and non-covered employment is considered a covered work month.