Windfall Elimination Provision
Social Security Offsets And Reductions For California Teachers
As a California teacher, you do not pay Social Security taxes. But you may have paid enough Social Security taxes in other jobs to qualify for a Social Security retirement benefit. That benefit will be reduced because of your teacher’s (STRS) pension. The law requiring this reduction is called the “Windfall Elimination Provision.”
Also, your STRS pension will offset, and usually eliminate, any Social Security benefits you might be due on a spouse’s Social Security record. The law requiring this is called the “Government Pension Offset.”
Windfall Elimination Provision
The key to understanding this provision is to realize that the word “social” in Social Security means something. Unlike private and other public sector pension plans, there are social goals built into the Social Security program. One of those goals is to raise the standard of living of lower income workers in retirement. This is accomplished through a benefit formula that is designed to give lower paid workers a better deal than their more highly-paid counterparts. Very low-paid workers could get a Social Security retirement benefit that represents up to 90 percent of their earnings. This percentage is known as a “replacement rate.” In other words, the Social Security benefits paid to low income workers are intended to replace up to 90 percent of their pre-retirement earnings. People with average incomes generally get a 40 percent replacement rate. Higher income people get a rate around 30 percent.
The problem is that as a California teacher, you are treated as a low-income person. That’s because there are “zeros” on your Social Security earnings record for every year you spent working as a teacher. Our records won’t show you were actually working as a teacher in California earning a STRS pension. Instead, your Social Security earnings record indicates to us that you had many gaps in your work history, so we use the benefit formula intended to compensate a lower income person. But as a teacher, you generally can be classified as someone with an average income, so you should get the same Social Security replacement rate paid to all average workers. That’s why a modified formula is used to refigure your benefits and give you the proper – and fair – replacement rate.
What does that mean in real money?
If you are affected by the windfall elimination provision, here’s a formula you can use to refigure your benefit. If the retirement estimate in your Social Security statement is:
$545 or more, subtract $303
$544 or less, multiply by 0.44
An exception – if you have more than 20 years of “substantial” Social Security earnings
The formula on the bottom of the front page only applies to people who have 20 or fewer years of “substantial” Social Security earnings. A chart giving a year-by-year breakdown of substantial earnings is available at www.socialsecurity.gov/pubs/10045.html. If you have between 20 and 29 years of substantial earnings, your Social Security benefit will be only partially reduced. Call us at 1-800-772-1213 to learn the reduction that applies to you. If you have 30 or more years of substantial Social Security earnings, the windfall provision won’t apply and your benefit will not be reduced.
There are other exceptions that apply to railroad workers, some employees of non-profit organizations, and people who worked in non-Social Security jobs before 1957. For a complete list of exceptions, go to the same web address indicated above.