The Windfall Elimination Provision (WEP) is a subject of heated debate in the United States, affecting the Social Security benefits of many individuals who have worked in both the public and private sectors, or in foreign countries with earnings based public pensions such as CPP in Canada. With the recent passage of the Social Security Fairness Act by both houses of Congress, the future of the WEP hangs in the balance, awaiting President Biden’s signature. Let’s break down what the WEP is, why it exists, and explore the arguments for and against its repeal.
What Is the Windfall Elimination Provision?
The WEP is a formula used to adjust Social Security benefits for individuals who have pensions from employment not covered by Social Security, such as many state and local government jobs, and some foreign pensions. The provision aims to prevent what some see as a “windfall” for workers who might otherwise receive disproportionately high benefits due to their combined earnings from Social Security-covered and non-covered employment.
The Social Security Totalization Agreement allows Canadians with less than 40 quarters of Social Security earnings history to qualify for Social Security benefits based on your years working and contributing to the Canada Pension Plan (CPP) in Canada. Your earnings and CPP contributions do not count toward determining your Social Security benefit, but your years of working in Canada will count toward the required 40 quarters to qualify for Social Security benefits. Your actual Social Security benefit will be based on your U.S. earning subject to FICA taxes.
How Does WEP Work?
The WEP modifies the formula used to calculate Social Security benefits. Social Security benefits are calculated by applying three different percentages to a person’s lifetime average indexed monthly earnings (AIME) and adding them up to obtain the worker’s monthly benefit (primary insurance amount (PIA)) at full retirement age. For most beneficiaries in 2024, the PIA equals the sum of:
- 90 percent of the first $1,174 of AIME, plus
- 32 percent of AIME over $1,174 and through $7,078, plus
- 15 percent of AIME over $7,078.
The WEP PIA replicates the regular PIA but scales down the first percentage from 90 percent to 40 percent in increments of five percentage points per year for workers with less than 30 years of coverage (YOCs). Thus, workers with 30 or more YOCs have a first PIA factor of 90 percent, including those that would otherwise be subject to the WEP or have Canadian earnings history. Workers with 21–29 YOCs have a first PIA factor between 45–85 percent, and workers with 20 YOCs have a first PIA factor of 40 percent.
| YOC | % AIME |
| 30 | 90 |
| 29 | 85 |
| 28 | 80 |
| 27 | 75 |
| 26 | 70 |
| 25 | 65 |
| 24 | 60 |
| 23 | 55 |
| 22 | 50 |
| 21 | 45 |
| 20 | 40 |
The reduction cannot exceed half of the individual’s government pension from non-Social Security-covered employment.
Why Does WEP Exist?
The WEP was introduced in 1983 to address concerns that the standard Social Security formula overestimates benefits for workers with mixed earnings records. Without the WEP, individuals with short careers in Social Security-covered jobs could receive benefits as if they were lower-income workers, even if they had substantial pensions from non-covered employment.
Since earnings are averaged and do not include uncovered pensions, people who worked part-time along with, or for a limited number of years after, their Social Security-exempt employment receive a Social Security benefit that is a larger percentage of their overall employment earnings because of the way Social Security credits a larger percentage to lower earnings levels and provides a larger proportional benefit to lower income earners.
The Social Security Fairness Act: A Turning Point
The Social Security Fairness Act, recently passed by Congress, seeks to repeal both the WEP and the Government Pension Offset (GPO). Advocates of the repeal argue that these provisions unfairly penalize public servants, such as teachers, police officers, and firefighters, who have devoted their careers to serving the public.
Positions of President Biden and President-Elect Trump
President Biden: President Biden has previously expressed support for reforming the WEP to make it fairer. While not explicitly endorsing full repeal during his presidency, he has recognized the hardships it imposes on public workers. His decision on signing the repeal bill is eagerly anticipated.
President-Elect Trump: Donald Trump has not yet issued an official statement on the WEP repeal but has historically taken positions that resonate with concerns about the financial sustainability of Social Security. On December 17, 2024, The Fraternal Order of Police (FOP) released a letter describing a recent meeting with President-elect Donald Trump on December 16. The FOP reports that President-elect Trump supports a full repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). Observers speculate that he might oppose the repeal on fiscal grounds while appealing to affected voters by advocating for targeted reforms.
Arguments in Favor of WEP Repeal
- Fairness to Public Servants: Advocates argue that the WEP unfairly reduces benefits for individuals who paid into Social Security and earned pensions from public service.
- Simplification: Repealing the WEP would simplify the Social Security system, reducing confusion and administrative burdens.
- Addressing Inequities: Critics of the WEP point out that it disproportionately impacts lower-income retirees, exacerbating financial challenges for vulnerable populations.
Arguments Against WEP Repeal
- Cost to Social Security: Repealing the WEP would increase Social Security’s financial obligations, potentially hastening the depletion of the Social Security trust fund.
- Preserving the Intent: Supporters of the WEP argue that it prevents unfair advantages for individuals with dual retirement incomes. Those subject to the WEP are still receiving a pension as a result of paying into another pension system through those uncovered earnings, just not from Social Security. Retirees receiving Social Security and another pension that is covered by WEP often end up better off than those who only receive Social Security because it appears as if they had lower career earnings and hence earn a larger proportional benefit. There is also a floor on the amount WEP can reduce your Social Security.
- Fiscal Responsibility: Opponents of repeal suggest that addressing inequities should not come at the expense of the program’s long-term solvency.
What Do You Think?
The debate over the Windfall Elimination Provision touches on core issues of fairness, fiscal responsibility, and the role of Social Security in supporting retirees. As the nation awaits President Biden’s decision, we invite you to share your thoughts. Do you believe repealing the WEP is the right move, or do you think it’s necessary to maintain the provision to protect Social Security’s future?
Let us know your perspective in the comments below!
