Are you an educator or public servant who currently works — and will eventually be subject to Social Security’s Windfall Elimination Provision or the Government Pension Offset? Tired of waiting on your elected officials to keep their promises and repeal the WEP and GPO that punish workers like you?
If so, I have some good news: you have the power to get these rules changed. You just need to know what actions to take, and that’s what I want to share with you in this article.
Why the Rules Around the Windfall Elimination Provision and Government Pension Offset Haven’t Changed – Yet
The amount of legislation that’s already been introduced to either reform or completely repeal the Windfall Elimination Provision and the Government Pension Offset creates a long, long list. And yet these rules stubbornly stick around.
The issue is that this kind of legislation is typically introduced during election season– and then dies in committee shortly thereafter. The closest that any bill has ever come to success was HR 711 which was sponsored by Rep Kevin Brady.
At the time, Rep Brady was the chairman of the House Ways and Means Committee. If a bill ever had the chance to make it out of committee and to the floor for a vote, that was it. So why has it been so difficult for any of these bills to gain traction?
It’s purely a matter of numbers. If you look at all recipients of Social Security, only 4% are affected by the Windfall Elimination Provision and Government Pension Offset. Therefore, lawmakers have little incentive to actually act on these proposals because they don’t affect enough voters to make a difference when it comes election time.
It may be time to start considering that this will never change legislatively — but there may be another way.
Forget Lawmakers in DC, and Focus on Change in Your District
Instead of pushing for change at the federal level, teachers and public servants may want to look at what you have the power to do to implement rule changes in your local school district.
First, you need to know that the laws vary among the different states. There are currently 15 states where educators do not pay into Social Security. If that’s your state, then you probably won’t be able to follow the procedures I’m about to outline. (But keep reading — I’ll give you the contacts to help you figure out how this works in your state.)
That matters because Windfall Elimination Provision (or WEP) and the Government Pension Offset (or GPO) only apply to individuals who have a pension from a job where they did not pay Social Security taxes.
A lot of educators think that since they went to work at a school district that does not participate in Social Security, they are stuck with these WEP and GPO rules unless the law changes.
But what if you could start to participate in Social Security right where you work? It’s possible!
In fact, in my home state of Texas — one of the states where teachers generally don’t participate in Social Security — there are multiple districts that participate in both Texas TRS and Social Security through the Section 218 agreement.
For these individuals in these school districts, the WEP and GPO do not apply for the time they spend at a dually covered school district!
A Quick Note on Taxes
This solution helps your district get around the WEP and GPO rules. But there’s a small tradeoff, and that comes in the form of a change to your tax situation.
Right now, you likely pay 1.45% of your salary to Medicare. If you start to participate in Social Security, that will increase by 6.2% to a total of 7.65%.
That’s a lot, but it may be well worth it. (I’ll get to determining whether or not the tax increase pays off in the long-run a little later in this article.)
Your school district will also have to start contributing their part of Social Security taxes which will be an additional 6.2% — and this is why you may meet some resistance to a proposed change to participate in Social Security.
Their payroll expense will increase which means that they’ll probably have to cut future expansion plans or some other budget item. Be prepared: this will most likely ruffle some feathers.
Let’s talk about how to get that vote on the table so you can have more say in how your school district operates in this area.
The Process for Changing How Your District Participates in Social Security
How did my home state of Texas end up with some districts that participate in both Texas TRS and the Social Security program? In many cases, it came down to a vote among the employees where they decided to become covered by Social Security.
You have this same option. It probably won’t be easy, and you could meet some resistance from administration for reasons discussed above. But there’s an actual process you can follow to get this to a vote.
Every state has a State Social Security Administrator. They are going to be crucial in getting this done — but they may only talk to the administration. The first thing you need to do, therefore, is to convince your administration to set up the referendum.
Depending on how open the administration is to feedback from employees and how motivated they are to work with its teachers and staff, this might be an easy step or a very challenging one — but unless you get them involved, this will never go anywhere.
Once the issue goes to a referendum, there are two types of votes you can have in most states. There is the majority vote, where the majority could decide on Social Security coverage. If it passed everyone would participate; if it did not pass, no one would participate.
There’s also the “individual choice” vote or divided vote. This choice is not available in every state, but this type of vote allows only those employees who vote “yes” and all future employees who become members of the retirement system to be covered by Social Security. All current employees who vote “no” would not be covered.
Understanding How the WEP and GPO Currently Affect You
There’s obviously a cost to both you and your school district if you start participating in Social Security. The question is, would it be worth it? Understanding that requires a little background information and education.
You may want to watch my video on teachers’ retirement and Social Security benefits, or pick up my book, The Hero’s Penalty, for a deeper view. I’ll hit the high points of what you need to know regarding both the Windfall Elimination Provision and the Government Pension Offset to show you how to figure out how gaining coverage from Social Security would affect you.
There are two separate provisions to understand here:
- Windfall Elimination Provision
- Government Pension Offset
The Windfall Elimination Provision is simply a recalculation of your Social Security benefit with a different formula than is used for everyone else.
Obviously, this doesn’t apply to you if you have never paid into Social Security, but if you have qualified for Social Security, say from a previous job, it is maddening to find out that your benefit is going to be reduced because of your job in public service.
This isn’t a small reduction, either. The max reduction in 2019 is $463 per month. That’s serious retirement income that would come in handy for most people.
The sad part is that the reduction is not on your Social Security benefits statement, so it’s not clear that you’re losing out on potential income. The statement shows your benefit as if your benefit will be calculated by the same formula as everyone else.
That’s a nasty surprise to get retirement started with!
There’s also the Government Pension Offset. This penalty does not apply to benefits from your work, but it does reduce spousal or survivors’ benefits (and, in many cases, completely wipes out those benefits).
The reduction to those benefits is equal to two-thirds of your pension. So, if your pension is $3,000, they would subtract $2,000 from any Social Security spousal or survivors’ benefits before they were paid to you.
The Impact of Plugging into the Social Security System
Let’s talk about how gaining coverage through Social Security and getting around the WEP and GPO rules could affect you. Let’s look at the Windfall Elimination Provision first.
The one way around the Windfall Elimination Provision that works well is to accumulate what the Social Security Administration calls “substantial earnings.” These are annual earnings of a certain amount where you paid into Social Security in another job.
If you have at least 21 years of these substantial earnings, the amount you’re penalized begins to decline. At 30 years of substantial earnings, the penalty amount goes away altogether. You can look at your earnings history to determine how many years you have.
If you’re in a district that begins to contribute to Social Security, you would start to accumulate these substantial earnings as long as your earnings were at or above the amount the Social Security Administration sets (which is $24,675 for 2019; this generally increases annually).
So, if you have previous work and earnings history where you paid into Social Security, it may not take but a few more years of working for you to avoid the penalty.
Now the Windfall Elimination provision workaround is nice if you can qualify for it — but 30 years is a long time. You may not want to work long enough to accumulate the required years… but getting around the GPO is a bit different and offers the bigger opportunity.
The exclusion for the Government Pension Offset is only 5 years and could mean a bigger benefit anyway. Here’s how this one works:
There is a Social Security rule known as the “last 60 month rule.” It says that you will not be subject to the GPO if you meet the following criteria:
- Work at a job where you contribute to Social Security for at least the last 60 months of employment, and
- That job is covered by the same retirement plan.
This means that if you get Social Security coverage at your school district, and spend at least 60 months there, the GPO should not apply to you. So how much is that worth?
Let’s assume that your spouse has a Social Security benefit of $2,000 per month at his or her full retirement age. If you can get out of the GPO, you would be eligible for a spousal benefit of $1,000 per month at your full retirement age.
Assuming that Social Security has an average cost of living adjustment of 2% per year, and that your retirement lasts for 20 years, the spousal benefit would pay you $291,568 in lifetime benefit payments.
If your spouse dies, you’d be eligible for survivors’ benefits, too. Using the same cost of living and life expectancy number, that would be worth $583,136 in lifetime benefit payments.
This is where I think most current educators would have the greatest benefit — but there are still those who ask, “Is it really fair to get a Social Security benefit that I didn’t work for?”
I understand why people ask that, but consider this: If instead of being a teacher, you worked for some other job with its own retirement plan. You would be qualified for spousal or survivors’ benefits in that situation. If you wouldn’t have worked a paying job at all and instead just managed your household, you would also be eligible to receive spousal or survivors’ benefits.
Why should you be penalized because you chose to be an educator or some other public servant?
It’s well worth considering if avoiding the WEP and GPO rules that penalize teachers and educators would benefit you and your colleagues. If so, consider working with your administration to set up a referendum so you can put it to a vote, and take control over this aspect of your retirement income.
If you’d like some help in deciding how this could impact you, I or someone on my team may be available for a consultation. Here’s where to find out more about hiring me.