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First step toward addressing WEP! Bipartisan bill to be introduced

Representatives Brady (R-TX), Shaw (R-FL), McKeon (R-CA), and Berman (D-CA), are expected to introduce this week a bipartisan bill (the Public Servant Retirement Protection Act) to begin addressing the problem of the Windfall Elimination Provision. The sponsors are working to add another Democrat as an original sponsor. NEA staff worked with the sponsors to draft the bill. The bill has not been assigned a number and other sponsors are being added.

As previously reported, NEA has been engaged in tough negotiations with Chairman Shaw to move legislation addressing the WEP and GPO out of committee. Attempts to go around the Chairman (such as with a discharge petition) are not likely to succeed and may only result in a loss of bipartisan support.

NEA has been working on this issue since the early 1980s and this is the first opportunity to make any real progress. While the proposed bill doesn't fully address the problems with WEP or deal with the GPO, it is a positive first step. Sponsors of the proposal have indicated they intend to hold a hearing and a committee mark-up is possible. As a result, this proposal could pass this year! Therefore, NEA is supporting the Brady proposal and is encouraging sponsors of the full repeal bill to add their support to the new bill as well. However, NEA will continue to fight for our ultimate goal -- total elimination of both the GPO and the WEP. In addition, NEA will continue discussions with sponsors to find an acceptable means of paying for the new proposal.

How Would the Proposal Work?

The Brady proposal would change the formula for calculating Social Security benefits for individuals who have income both from covered and non-covered employment. The intent is to create a fair and equitable formula that allows individuals to get back what they have paid into Social Security.

The same formula would apply to all beneficiaries, including those also receiving a public pension from non-covered work. Once the benefit has been calculated, it would be reduced by the percentage of the individual's work history that took place in non-covered jobs.

Currently, individuals who have income from both covered and non-covered work are subject to an offset of their benefits. The offset works by:

1. Counting earnings just from Social Security-covered work.
2. Averaging those earnings over the total number of years in the workforce (whether in covered or non-covered work). For individuals with both covered and non-covered work, the average monthly earning is deceptively low because the Social Security earnings are averaged over the total years worked, not just over the years worked in Social Security-covered jobs.
3. Reducing the percentage usually applied to earnings in calculating benefits. This last step is the WEP. Supporters say the reduction is necessary in order to ensure that benefits are not calculated on the artificially low earnings from step 2.

Under the Brady proposal, benefits would be calculated by:

1. Counting ALL earnings, including those from non-covered work.
2. Averaging them over the total number of years in the workforce. This will eliminate the artificially low monthly earnings, since all earnings will be included in the average.
3. Applying the same percentage applied to other workers.
4. Reducing the benefit by the percentage of work from non-covered employment (i.e., a person who had ½ of her earnings from Social Security work could receive ½ of the benefit).

The changes in this proposal will improve benefits by different amounts for different individuals, depending on a variety of circumstances, including total career earnings and percentage of earnings covered by social security. The percentage change in benefits for most people will range from 9% to about 20%. In general, those with lower career earnings will see a higher percentage increase, which is in keeping with the original intent of social security.

Examples of impact of Brady proposal on Windfall Elimination Provision:

Current System - Non-Impacted Individuals
1. Count earnings from Social Security-covered work.
2. Average those earnings over the total number of years in the workforce.
3. Apply the benefits formula (90 percent of first $612, plus 32 percent of the next $3,077, plus 15 percent of anything over this amount).

Example: An individual works her whole life in Social Security covered work. She has $500,000 in total earnings over 35 years.

1. Earnings are $500,000.
2. Averaged over 35 years (420 months) gives a monthly amount of $1,190.
3. Apply formula. Monthly benefit is $735.76 (90 percent of $612 ($550.8), plus $32 percent of $578 ($184.96)).

Current System: WEP-Impacted Individuals
1. Count earnings just from Social Security-covered work.
2. Average those earnings over the total number of years in the workforce (whether in covered or non-covered work).
3. Apply the reduced benefits formula (40 percent of first $612, plus 32 percent of the next $3,077, plus 15 percent of anything over this amount).

Example: An individual works 10 years in Social Security covered work and 25 years as a teacher in a non-Social Security state. She has $500,000 in total earnings over 35 years, but only $200,000 is from Social-Security covered work.

1. Earnings just from Social Security work are $200,000.
2. Averaged over 35 years (420 months) gives a monthly amount of $476. (Artificially low because only the SS earnings are averaged over the whole lifetime of work. This worker then appears as a low wage earner, but she is not).
3. Apply reduced formula. Monthly benefit is $190 (40 percent of $476).

Brady Proposal
Count ALL earnings, including those from non-covered work.
1. Average them over the total number of years in the workforce.
2. Apply the same percentage as applied to other workers.
3. Reduce the benefit by the percentage of work from non-covered employment (i.e., a person who had ½ of her earnings from Social Security work could receive ½ of the benefit).

Example: An individual works 10 years in Social Security covered work and 25 years as a teacher in a non-Social Security state. She has $500,000 in total earnings over 35 years, but only $200,000 is from Social-Security covered work.

1. Total earnings are $500,000.
2. Averaged over 35 years (420 months) gives monthly total of $1,190.
3. Apply regular formula. Monthly benefit is $735.76 (90 percent of $612 ($550.80), plus $32 percent of $578 ($184.96)).
4. Reduce by percentage of earnings from non-covered work. 60 percent of her earnings were in non-covered work, so reduce benefit by 60 percent for a total benefit of $294.30.

Stay Up-To-Date! The latest GPO/WEP news is posted on NEA's Legislative Action Center at http://www.nea.org/lac/socsec. Click on "latest news."