The Windfall Elimination Provision And You

If you worked in local, state or federal jobs where you did not pay the F.I.C.A. tax and will receive a pension based on that work AND will receive a Social Security retirement benefit, the Windfall Elimination Provision (WEP) will apply to you. It applies when you are receiving both a non-covered pension and Social Security. (This happens when someone works in a job where they did not pay the F.I.C.A. tax and gets a non-covered pension, but before, during or after that employment worked for other employers where they did pay the F.I.C.A. tax. They worked long enough in these Social Security covered jobs to earn 40 work credits which makes them eligible for a Social Security check.  So, they will get a non-F.I.C.A. covered pension AND a Social Security check.)

Sometimes employees are confused by what is considered a non-covered pension for this purpose.. A pension is a periodic or lump sum payment from an employer’s retirement or disability plan, based on employer and/or employee contributions and based on eligibility factors such as age, length of service or earnings. Payments from either defined benefit (DB) or defined contribution (DC) plans are pensions for purposes of WEP and could affect your Social Security check.. For a pension to cause WEP, the payment must be based on earnings for service that were not covered by Social Security.

How do you know if the payment you will receive from your employer for your retirement or disability is a pension?  Generally, if employer contributions or employer and employee contributions are used to determine the payment amount, it is generally a pension subject to the windfall elimination provision (WEP). That means that WEP will affect you. This could be a defined benefit plan (what your employer usually calls a pension) or a defined contribution plan (a plan where the employer contributes a certain percentage of wages each year for the benefit of the employee with rules about eligibility for withdrawal of money. An example of a defined contribution plan is a 401(k) plan.)

Here is the take-away concerning WEP and your retirement. Find out from your employer how many and what type of retirement sources you have (defined benefit (pension) or defined contribution (401 (k)) for retirement. Find out who contributes to these funds on your behalf. Only you? Only the employer? Or both you and the employer. You also need to know what the eligibility factors are to withdraw from these accounts. You will also need to know what the earliest date you could receive funds is and the amount you could receive. This information will be needed if the WEP applies to your Social Security check. For additional info on the Windfall Elimination Provision, read our Fact Sheet at www.ssa.gov/pubs/EN-05-10045.pdf. Understanding how the WEP may affect your Social Security benefit is part of a smart retirement plan.