In previous Social Security Talking Points installments, some basics and advanced concepts of Social Security were introduced. This fifth and final installment will discuss Social Security provisions relating to Public Employees along with the taxation of Social Security benefits. The purpose of this five-part series is to embolden the advisor to be proactive, not reactive in assisting clients with their Social Security options. The advisor is the clients’ trusted advisor and must be prepared for clients’ questions on Social Security?
Public Employees (WEP/GPO)
In Ohio, 97.5 percent of public employees are not covered by Social Security. These employees pay into a government pension plan and do not pay Social Security taxes on their earnings. Clients that work in state, local, and county jobs might pay into an alternative pension plan and be subject to the Windfall Elimination Provision (WEP) as well as the Government Pension Offset (GPO). Federal employees that were hired prior to 1978 are also subject to these provisions. Twenty-five percent of our clients are subject these provisions as we are based on Ohio.
The Windfall Elimination Provision applies if your clients are eligible for a public employee pension and a Social Security benefit based on their own work record. The WEP applies when your clients have engaged in both types of employment. In 2017 the maximum reduction of Social Security benefits is $447. Please note that the estimated benefits on the Social Security statement have not been adjusted for WEP. Being subject to WEP will never reduce the client’s Social Security benefit to zero. The client will always receive a Social Security benefit even if subject to the Windfall Elimination Provision. Clients that have 30 years of more of “Substantial Earnings” will receive their full Social Security benefit.
Government Public Offset applies when clients are eligible for a public employee pension and a Social Security benefit off a spouse’s record. The GPO applies to Social Security based on a current spouse, a divorced spouse, or a surviving spouse.
The Government Public Offset frequently reduces Social Security benefits based on a current, divorced or deceased spouse to zero. Pursuant to GPO, Social Security benefits based on someone else’s work history must be reduced by two-thirds of the public employee pension. Social Security will pay the amount after applying the offset. Frequently, two-thirds of the public employee pension will completely offset potential Social Security benefits resulting in no benefits based off of a spouse.
Please note that WEP and GPO only apply when receiving a pension from work not covered by Social Security. Delaying the public employee pension may allow for a larger Social Security benefit.
A detailed discussion of WEP and GPO is beyond the scope of this article. We cover the complexities of these provisions during our National Social Security Advisors certificate training. For additional information on the NSSA, please contact me at [email protected].