If you are a public sector employee of the State of Maine, local school district, or municipality, chances are you pay into MainePERS but don’t pay into Social Security. What that means is your Social Security benefit may be reduced by the Windfall Elimination Provision. Suppose you are eligible for a pension (such as MainePERS) based on your work. This pension can affect the amount of your Social Security benefits, according to the Social Security Administration. The reduction is referred to as the Windfall Elimination Provision (WEP). WEP can be a big shock for those unaware of the provision.
Read your Social Security statement
Many affected by WEP are taken by surprise. Make sure you read your Social Security statement carefully; in it you will see that benefit estimates may not be accurate if you have worked in a position in which Social Security taxes were not paid.
Without knowing this, many non-covered governmental workers are surprised to learn that, for example, in 2020, the WEP resulted in as much as a $480 reduction to their estimated benefits.
Do you have 40 credits paid into Social Security?
This is not to say that you will never be eligible for anything from Social Security. If you have accumulated 40 credits with the Social Security Administration, you will likely be eligible for benefits later on. Credits are based on your total wages or income for the year, and you can earn up to four credits per year of full-time work.
As long as you have 40 credits, you will always be eligible for something each month from Social Security, even though you receive a public pension. You won’t receive as much as you have if you had remained in the private sector, but the WEP will not reduce your benefits to zero.
Folks affected by WEP should strive to fully understand the dynamic relationship between Social Security-covered earnings and non-covered earnings. Your retirement could depend on it.
What triggers WEP?
As soon as you start receiving your monthly pension benefit, the WEP is applied.
Why is that important? Because once someone reaches their Full Retirement Age (FRA), the person's work and earnings no longer affect his/her ability to collect Social Security benefits.
By way of example, if someone has reached FRA but has not yet retired from public service, they can apply for Social Security and receive a full – non-WEP – benefit amount each month. In other words, if an employee reaches FRA (66 or 67) she can collect Social Security in full while still employed and paying into MainePERS. Once she retires and starts to receive the public pension, she will need to notify the SSA that her retirement has begun. From there, her Social Security benefit will be adjusted downward to account for the impact of the WEP.
Work never hurts
Many public employees forget that a Social Security retirement benefit is based on an average of the person's 35 highest years of inflation-adjusted earnings under the system. These same folks are subject to the different formula of the WEP unless they accumulate 30 or more years of substantial earnings. See the earnings chart on page two of the attachment.
Any Social Security earnings that you have will result in a higher monthly retirement benefit, even if an additional year of earnings isn't enough to count towards substantial earnings.
How can IIS Financial Services help?
Feel free to contact our office if you have questions about your situation or future goals. We can create an illustration projecting your retirement income benefits from Social Security and MainePERS. The earlier you create a plan and educate yourself, the easier it is to stay on track for a financially secure retirement.
Contact our office if you have other questions about the Windfall Elimination Provision and see how it affects you