Bill to Strike Social Security Windfall Elimination Provision (WEP) Is Back

What You Need to Know

The reintroduced Social Security Fairness Act would eliminate the Windfall Elimination Provision and the Government Pension Offset.
These provisions can reduce benefits for public workers who did not pay Social Security taxes.
Advocates say elimination of the WEP would protect and enhance the progressive nature of the Social Security benefits formula.

The Congressional Research Service has published a new analysis of recently reintroduced legislation that would do away with the “windfall elimination provision” coded into the Social Security benefit formula.

As explained in the CRS analysis, the Social Security Fairness Act would terminate the Windfall Elimination Provision and the Government Pension Offset included in the Social Security benefit calculation formula. Broadly speaking, these provisions can reduce Social Security benefits for certain public workers who did not pay Social Security taxes during substantial portions of their working lives.

While the bill analyzed in the new report was passed out of committee in the House of Representatives in September, it died with the close of the 117th U.S. Congress at the end of last year. In January, however, the bill’s co-sponsors reintroduced the legislation, and they called on the current 118th Congress to pass it in full. As the report notes, the much-debated Social Security 2100 legislation would have a similar effect.

Supporters of the bills argue the “WEP” unfairly punishes certain public sector workers who may have included more generous anticipated Social Security payments into their retirement plans. They also say the WEP reduces benefits disproportionately for lower-earning households who have spent decades committed to public service.

What’s at Stake

As explained in the CRS report, the windfall elimination provision is a modified benefit formula that reduces the Social Security benefits of certain retired or disabled workers who are also entitled to pension benefits based on earnings from jobs that were not covered by Social Security — and thus not subject to the Social Security payroll tax.

Its purpose is to remove an unintended advantage or “windfall” that these workers sometimes receive as a result of the interaction between the regular Social Security benefit formula and the workers’ relatively short careers in Social Security-covered employment.

“Although participation in Social Security is compulsory for most workers, about 6% of all workers in paid employment or self-employment are not covered by Social Security,” the report states. “In December 2022, about 2 million people (or about 3% of all Social Security beneficiaries) were affected by the WEP.”

According to the CRS, these workers mainly include state and local government employees covered by alternative staff-retirement systems as well as most permanent civilian federal employees hired before Jan. 1, 1984. This latter group is generally covered by the Civil Service Retirement System.

The WEP and Its Consequences

As explored in the CRS report, the Social Security benefit formula generally cannot distinguish between workers who have low career-average earnings (because they worked for many years at low earnings in Social Security-covered employment) and workers who appear to have low career-average earnings (because they worked for many years in jobs not covered by Social Security).

“Consequently, workers who split their careers between covered and non-covered employment — even highly paid ones — may also receive the advantage of the weighted formula,” the CRS report states. “The reduction in initial benefits caused by the WEP is designed to place affected workers in approximately the same position they would have been in had all their earnings been covered by Social Security.”

According to the report, the impact of the WEP on low-income workers has been the subject of substantial ongoing debate. To help stakeholders understand the argument, the CRS analysis points to broadly cited academic work that has suggested the WEP is a “regressive” feature in the Social Security formula for two main reasons.

The first reason is that the WEP adjustment is confined to the first bracket of career-average earnings in the benefit formula ($1,115 in 2023), and it thus causes a proportionally larger reduction in benefits for workers with lower earnings and benefit amounts than for others. Second, a high earner is more likely than a low earner to cross the “substantial work” threshold for accumulating years of covered earnings. In 2023, this threshold is $29,700.

Because of these factors, the CRS analysis explains, the academic work suggests that the WEP does reduce benefits disproportionately for lower-earning households. And in fact, for some high-income households, applying the WEP to covered earnings even provides a higher replacement rate than if the WEP were applied proportionately to all earnings, both covered and non-covered.