Social Security: The Windfall Elimination Provision (WEP) Page: 4 of 11
This report is part of the collection entitled: Congressional Research Service Reports and was provided to UNT Digital Library by the UNT Libraries Government Documents Department.
Extracted Text
The following text was automatically extracted from the image on this page using optical character recognition software:
Social Security: The Windfall Elimination Provision (WEP)
Background
The Social Security benefit formula is designed so that workers with low average lifetime
earnings in Social Security-covered employment receive a benefit that is a larger proportion of
their earnings than do workers with high average lifetime earnings. (In covered employment,
earnings are subject to the Social Security payroll tax; Social Security benefits are based on
covered earnings.) The benefit formula does not distinguish, however, between workers who have
low average earnings because they worked for many years at low wages in Social Security-
covered employment and workers who appear to have low average earnings because they worked
in Social Security-covered employment for only part of their career. The generous benefit that
would be provided to workers with short careers in Social Security-covered employment in
particular, workers who have split their careers between Social Security-covered and non-covered
employment is sometimes referred to as a "windfall" that would exist in the absence of the
windfall elimination provision (WEP). The WEP reduces the Social Security benefits of workers
who have pension benefits from employment not covered by Social Security.
A worker qualifies for Social Security by working in Social Security-covered employment for 10
or more years (more specifically, by earning 40 or more "quarters of coverage"). The worker's
earnings history is indexed to wage growth to bring earlier years of his or her earnings up to a
comparable, current basis. Average indexed earnings are found by totaling the highest 35 years of
indexed wages and then dividing by 35. Next, a monthly average, known as Average Indexed
Monthly Earnings (AIME), is found by dividing the annual average by 12.
The Social Security benefit formula is designed to provide a progressive benefit. The benefit
formula applies three progressive factors-90%, 32%, and 15%-to three different levels, or
brackets, of AIME.' The result is known as the "primary insurance amount" (PIA) and is rounded
down to the nearest 10 cents. For people who reach age the age of 62, die, or become disabled in
2015, the PIA is determined in Table 1 as follows:
Table I. Social Security Benefit Formula in 2015
Factor Average Indexed Monthly Earnings
90% of the first $826, plus
32% of AIME over $826 and through $4,980, plus
15% of AIME over $4,980
The averaging provision in the benefit formula tends to cause workers with short careers in Social
Security-covered employment to have low AIMEs, similar to people who worked for low wages
in covered employment throughout their careers. This is because years of zero covered earnings
are entered as zeros into the formula that averages the worker's wage history over 35 years. For
example, a person with 10 years in Social Security-covered employment would have an AIME
that reflects 25 years of zero earnings.
1 Both the annual earnings amounts over the worker's lifetime and the bracket amounts are indexed to national wage
growth so that the Social Security benefit replaces approximately the same proportion of wages for each generation.Congressional Research Service
1
c11173008
Upcoming Pages
Here’s what’s next.
Search Inside
This report can be searched. Note: Results may vary based on the legibility of text within the document.
Tools / Downloads
Get a copy of this page or view the extracted text.
Citing and Sharing
Basic information for referencing this web page. We also provide extended guidance on usage rights, references, copying or embedding.
Reference the current page of this Report.
Sidor, Gary. Social Security: The Windfall Elimination Provision (WEP), report, June 30, 2015; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc806545/m1/4/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.