If you qualify for Social Security and will be receiving a retirement pension from employment in which you did not withhold Social Security taxes, your benefit may be decreased. The Windfall Elimination Provision (WEP) is a reduction to Social Security benefits due to one also receiving a pension for which no Social Security taxes were paid. For federal employees, this could apply to CSRS, CSRS Offset, and FERS transfers. In all three instances, the retiree’s pension is based on all or at least some years in which Social Security taxes were not withheld. For 2021, the maximum WEP reduction at full retirement age (FRA) is $498, up from $480 in 2020.
CSRS employees work for the federal government but do not pay into Social Security. They generally receive a larger pension in retirement than their FERS counterparts. Since FERS employees pay into Social Security, they qualify for this benefit too without penalty. How would a CSRS retiree be eligible for Social Security? For example, if a CSRS employee previously worked in the private sector, this individual can be eligible for Social Security. CSRS retirees eligible for Social Security will have their Social Security benefit reduced by—at the most– $498. However, the WEP reduction is limited to one-half of one’s pension from non-covered employment.
For instance, let’s assume John is a CSRS employee who worked in the private sector for 15 years before becoming a federal employee. John will receive a CSRS pension in retirement, but is also eligible for $1,000 a month from Social Security. John is excited about getting both income streams, but soon finds out that his Social Security benefit will be reduced by the maximum amount. John’s benefit of $1,000 a month is reduced by $498, giving him a new Social Security amount of $502 a month. John will still get the benefit of both a CSRS pension and Social Security; however, it will not be as much as he originally hoped.
Not everyone who receives a non-covered pension and Social Security will be subject to the full WEP reduction. If you have 20 or more years of substantial earnings—typically from years worked in the private sector — your benefit will not be reduced by the full amount. With 30 or more years of substantial earnings, the WEP reduction is eliminated altogether. The amount determined “substantial earnings” depends on the year; see SSA.gov’s WEP fact sheet for those specific dollar amounts.
Social Security can be a significant part of the retirement pie. If you are planning for retirement, be sure you are entitled to the benefits you think you are. Finding out you are actually not eligible for Social Security—or will receive a significantly lower amount than you thought—is not a welcome surprise. SSA.gov and your own federal agency are two great places to start looking for information. At Retirement Benefits Institute, we help federal employees gain clarity regarding their retirement packages on a daily basis; we’d be glad to help you too.