social security administration an overview of the impact of not paying social security taxes as a...

Social Security Administration

An Overview of the Impact of NOT Paying Social Security Taxes

as a State Employee

Windfall Elimination Provision

Government Pension Offset

Today’s Objectives

Fifteen minutes from now you Fifteen minutes from now you will know:will know:

How my retirement benefits are calculated

If I am eligible for Spouse or Survivor retirement benefits

The impact of potential offsets on retirement benefits

And Those Pesky Offsets

■ One Reduces your own benefit

■ The other reduces any benefits you might be eligible for on your spouse’s Social Security record

■ You will learn why they were enacted

Windfall Elimination ProvisionSocial Security is not a pension plan

but a Social Insurance plan. As such, it has “social” goals, among which is to:

Raise the standard of living for lower income workers

Non Covered Earners Look Poor

The addition of all those “zero” years give non covered earners an artificially low average wage.

But you’re not “low wage earners”

A non covered employee is not A non covered employee is not the kind of low-income worker the kind of low-income worker the weighted benefit formula is the weighted benefit formula is trying to compensate.trying to compensate.

The Other Offset

It’s called “Government Pension Offset” (GPO)

GPO takes two-thirds of your

non covered pension and deducts that from any spouse/survivor benefit you might be due

Social Security: Social Security: YesterdayYesterday

One spouse workedOne spouse worked The other spouse did not work The other spouse did not work

outside the homeoutside the home One received a Social Security One received a Social Security

checkcheck The other received a The other received a

“dependent” spouse benefit“dependent” spouse benefit

Both spouses work and pay into Both spouses work and pay into Social SecuritySocial Security

Since both work neither is Since both work neither is “dependent”“dependent”

Social Security: TodaySocial Security: Today

Social Security Statement

It is inaccurate if It is inaccurate if you are a non you are a non

covered covered employeeemployee

Two Important Points

If you have 40 credits you will be eligible for a monthly retirement benefit

If you have paid Social Security taxes for fewer than 30 years, your benefit will be reduced by WEP or GPO

How is this Done

■ A weighted benefit formula

■ Lower income workers receive a higher rate of return

How Social Security Determines Your Benefit

Social Security benefits are based on earnings

Step 1 Your wages are adjusted for changes in wage levels

Step 2 Find the monthly average of your 35 highest earnings years

Step 3 Result is “average indexed monthly earnings”

If your average monthly earnings are = $5,200Then your monthly benefit would be = $2,001

Average Monthly Earnings $5,200

90% of First $761 = $685

32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)

15% of Earnings over $4,586 $614 = $92($5,200-$4,586 = $614)

$5,200 $2,001

If your average monthly earnings are = $5,200Then your monthly benefit would be = $2,001

Average Monthly Earnings $5,200

90% of First $761 = $685

32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)

15% of Earnings over $4,586 $614 = $92($5,200-$4,586 = $614)

$5,200 $2,001

Retirement Benefit Computation Example

Retirement Benefit Computation Example

Modified Formula

The Windfall Elimination Provision says we must refigure your benefit giving you the 40% (average) return rate instead of the 90% (low income) return rate.

Retirement Benefit Computation Example

with WEPIf your average monthly earnings are = $5,200Then your monthly benefit would be = $1,620

Average Monthly Earnings $5,200

40% of First 761 = $304

32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)

15% of Earnings over $4,586 614 = $92($5,200-$4,586 = $614) $5,200 $1,620

If your average monthly earnings are = $5,200Then your monthly benefit would be = $1,620

Average Monthly Earnings $5,200

40% of First 761 = $304

32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)

15% of Earnings over $4,586 614 = $92($5,200-$4,586 = $614) $5,200 $1,620

Impact of the Windfall Elimination Provision

WEP Recognizes the more years a non covered wage earner has paid Social Security taxes, the closer you should be to the standard benefit formula

√ 30 Years = standard formula with 90% as return rate

√ 21-30 years = modified formula with return rate between 40-85%

√ 20 years or less = full WEP formula with 40%

WEP Effective Date

First Month Entitled to Both Social Security and Pension Based on Non Covered Employment

Alternate Retirement Program

Hired after 07/13/1990 = Covered under Social Security = NO WEP

Hired before 07/13/1990—employees decided to be covered or not be covered under Social Security = All or Partial WEP

ARP Account Value

Value of Account:

■ Effective date of termination (regardless of when funds are actually disbursed)

■ Based on mandatory contributions only (do not include voluntary contributions)

Monthly Pension Amount

Life expectancy tables determine a monthly pension amount

For covered and non covered employees = pension is prorated

Account Value Verification

TIAA-CREF: 1-800-842-2776

ING: 1-800- 584-6001

ING took over State of Connecticut contract January 1, 2006

Key to Understanding Key to Understanding GPOGPO

Dependent BenefitsDependent Benefits Consider history of spouse’s Consider history of spouse’s

benefits under Social Securitybenefits under Social Security

Unless One was a Non Unless One was a Non Covered Employee…Before Covered Employee…Before

GPOGPO

If one spouse was a non covered If one spouse was a non covered employee, they received their employee, they received their own non covered pension AND a own non covered pension AND a “dependent” Social Security “dependent” Social Security benefit.benefit.

Dependent Retirement Benefit Computation Example with GPOThe reduction is two-thirds (2/3) of the non

covered government pension.

Example: Employee is getting a $600 state pension. This employee is eligible for a $500 spousal benefit from Social Security

2/3 times $600 is $400

$500 minus $400 is $100

This employee would get a $100 Social Security benefit.

For More Information

■ www.socialsecurity.gov

■ 1-800-772-1213

■ Local Social Security Office