re: Rep. Garret Graves escalates effort to repeal Social Security penalty for teachers, police

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To understand the effect of repealing the WEP, consider two people who each earned $40,000 a year for 35 years, adjusted for growth in average wages. Suzy paid into Social Security every year, while Stephen paid into Social Security for 15 years and worked outside the system for 20 years, not paying Social Security taxes during those years. Because the Social Security benefit formula averages the highest 35 years of a worker’s covered earnings, Suzy’s average earnings in the Social Security benefit formula would reflect her full $40,000 salary — but Stephen’s would be the same as someone who earned just $17,000 per year (40,000 x 15/35).

Suzy’s Social Security benefit at full retirement age ($1,661 per month or $19,932 annually) would replace half of her average monthly covered earnings. If WEP were repealed, Stephen’s Social Security benefit ($1,047 per month or $12,564 annually) would be relatively more generous, replacing nearly three-quarters of his covered earnings, because Social Security’s progressive benefit formula is more generous to low earners. In addition, Stephen would receive a pension reflecting his non-covered employment that was intended to replace Social Security, which for a typical WEP-affected beneficiary is over $2,000 a month. Stephen’s non-covered pension plus his Social Security could be substantially higher than Suzy’s Social Security benefit.

Similarly, Stephen could appear to have significantly lower lifetime earnings than his spouse, based only on his covered earnings, qualifying him for a Social Security dependent benefit. This could be true even if he earned more than she did, and even though his non-covered pension means he’s not dependent on his spouse. For example, if his spouse’s average annual indexed earnings were $35,000 and she died, Stephen’s Social Security benefit would increase by $480 to a total of $1,527 a month ($18,324 annually) if policymakers repeal the GPO rule. This is because he appears to have earned about half of his wife’s lifetime wages — even though he actually earned more than she did. He would also continue to receive his non-covered pension. Had they both worked entirely in Social Security-covered employment, he wouldn’t be eligible for a survivors benefit because his lifetime earnings were higher.

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