{ "id": "R46194", "type": "CRS Report", "typeId": "REPORTS", "number": "R46194", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 616675, "date": "2020-01-24", "retrieved": "2020-02-11T23:24:02.230441", "title": "The Windfall Elimination Provision (WEP) in Social Security: Comparing Current Law with Proposed Proportional Formulas", "summary": "Social Security is a work-based federal insurance program that provides income support to workers and their eligible family members in the event of a worker\u2019s retirement, disability, or death. About 6% of workers in paid employment or self-employment in 2019 were not covered by Social Security. A quarter of state and local government employees and most permanent civilian federal employees hired before January 1, 1984, were not covered, and these groups constituted the majority of noncovered workers. \nFor workers whose entire careers are covered by Social Security, the Social Security benefit formula is weighted to replace a greater share of career-average earnings (referred to as the replacement rate) for low-paid workers than for high-paid workers. However, providing an appropriate replacement rate for beneficiaries whose careers are split between covered and noncovered employment (referred to hereinafter as split-career beneficiaries) is challenging because years of noncovered earnings are marked as zeros in Social Security earnings records, so split-career beneficiaries appear to have low career-average earnings. Therefore, if there were no adjustment for noncovered earnings, split-career beneficiaries would receive a higher replacement rate than beneficiaries with the same earnings who spent their entire careers in covered employment. The windfall elimination provision (WEP) is a modified benefit formula that reduces certain retired or disabled workers\u2019 Social Security benefits if they also have earnings not covered by Social Security and are entitled to pension benefits based on those noncovered earnings. The WEP aims to provide split-career beneficiaries with approximately the same replacement rate as similar workers whose entire careers were covered by Social Security.\nSome have argued, however, that the current-law WEP formula generally fails to accurately adjust affected workers\u2019 benefits. They say it overadjusts some affected workers\u2019 benefits (i.e., it reduces them by too much), giving them a lower replacement rate than similar workers whose entire careers were covered by Social Security. In contrast, they argue it underadjusts some other affected workers\u2019 benefits, giving them a higher replacement rate than similar workers whose entire careers were covered. Estimates in 2018 showed the current-law WEP overadjusted 69% of affected beneficiaries\u2019 benefits and underadjusted for the remaining 31%. \nLegislative proposals have been introduced to substitute the WEP with a proportional formula that would calculate Social Security benefits based on earnings from both covered and noncovered employment. The proportional formula\u2019s supporters have argued it is a more accurate method to treat noncovered employment, because it would provide the same replacement rate for split-career beneficiaries and beneficiaries whose entire careers are covered by Social Security. \nCompared with current law, a proportional formula would increase Social Security benefits for beneficiaries whose current-law WEP benefits are overadjusted and decrease benefits for those whose benefits are underadjusted. It would also decrease benefits for many beneficiaries with earnings from noncovered employment who are exempt from the current WEP reduction because they (1) have 30 or more years of substantial covered earnings, or (2) do not receive a pension based on noncovered earnings. \nProposals to establish a proportional formula have been discussed since the 1980s. However, applying the proportional formula requires a complete record of earnings from covered and noncovered employment, which were not readily available at that time. To obtain the complete earnings record, the Social Security Administration (SSA) would have needed a massive new operation system requiring extensive data reporting, maintenance, and correction processes, which could not have been accomplished quickly with limited costs. Therefore, the current-law WEP was enacted in 1983 as an approximate approach to adjust Social Security benefits for certain beneficiaries who had earnings in jobs not covered by Social Security. Today, SSA has 35 years of data on earnings from both covered and noncovered employment, implying that the proportional formula is now an option for Congress to consider. In 2019 (the 116th Congress), H.R. 3934 and H.R. 4540 would replace the current-law WEP approach with a proportional formula for certain individuals who would become eligible for Social Security benefits in 2022 or later.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R46194", "sha1": "72e77e8ff9c4e862893c8eedeb1743d0c916b5b1", "filename": "files/20200124_R46194_72e77e8ff9c4e862893c8eedeb1743d0c916b5b1.html", "images": { "/products/Getimages/?directory=R/html/R46194_files&id=/1.png": "files/20200124_R46194_images_6de2b91f8eb79224096dfbdec714fdab9cbfef33.png", "/products/Getimages/?directory=R/html/R46194_files&id=/2.png": "files/20200124_R46194_images_7f38ab247e62d6e765a51ee99f38770e68a914bd.png", "/products/Getimages/?directory=R/html/R46194_files&id=/3.png": "files/20200124_R46194_images_00d3fa18db2b48f63b8d7feeb48fabbccb7902fa.png", "/products/Getimages/?directory=R/html/R46194_files&id=/0.png": "files/20200124_R46194_images_7afbde50fafc67904ae83dce3c53d70524010361.png", "/products/Getimages/?directory=R/html/R46194_files&id=/4.png": "files/20200124_R46194_images_82045fd6b3ce314ee9c09ec49231ce95c94da966.png", "/products/Getimages/?directory=R/html/R46194_files&id=/5.png": "files/20200124_R46194_images_ad9f755449022d54d60d9414ded9f3aa56cadf9f.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R46194", "sha1": "48ea7a6391fbc5a457d35340eb822415c8669ece", "filename": "files/20200124_R46194_48ea7a6391fbc5a457d35340eb822415c8669ece.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4796, "name": "Social Security" } ] } ], "topics": [ "Domestic Social Policy" ] }