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Will PERS Reduce My Social Security Benefits?

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A frequently asked question about PERS is, "How will my PERS benefit be affected when I draw Social Security?"

The answer is that the Public Employees' Retirement System (PERS) benefits that you receive, because of working for a state or local government employer, will not be affected by receiving Social Security payments. However, your Social Security payments may be affected because of receiving a PERS income.

Two federal government regulations, the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP), may have an impact on how much Social Security income you receive because you are eligible for the PERS income.

These regulations affect workers who may have had a private-sector job that was paying into the Social Security system in addition to their public service job, which do not have Social Security payments withheld. Another group that these regulations have an impact on is those spouses, widows, or widowers who qualify to receive a Social Security income because their spouse or domestic partner died or became disabled.

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Government Pension Offset (GPO)

If you are a spouse that qualifies for both the PERS benefits, based on a job that requires no Social Security payments to be paid into the system, and also qualifies for Social Security spousal or survivor benefits, this regulation will reduce the dollar amount of spousal benefits you qualify for.

In 1977, Congress created this to help ensure that spousal or widow(er) benefits would be approximately equal for those who worked in the private sector and had Social Security payments withheld from their income and those that worked in jobs where Social Security payments were not paid into the system and, now, receives a non-covered pension.

Originally, Congress passed the law that there would be a dollar-for-dollar offset for non-covered pensions, but in 1983, it changed the offset to two-thirds of the non-covered pension.

For example, you may have a non-covered pension of $3000 a month. Two-thirds of $3000 is a $2000 offset.

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A spouse or widow(er) reaching the age of 62 can apply for spousal benefits if you have no social security income based on your earnings, as is the case of a non-covered pensioned employee. Before any offset is applied based on this regulation, you should be able to get half of the spousal benefit.

If the spousal benefit is $2200 a month, the spousal benefit you would be entitled to would be:

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$2200 - $2000 = $200.

Now, if the spousal benefit were $1000, with the $2000 offset, you would be entitled to $0 of the spousal benefit because the offset is larger than the $1000 spousal benefit.

Note that if you reached full retirement age, you would be entitled to the full spousal benefit of $2000 but with the same offset calculations.

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Windfall Elimination Provision (WEP)

The WEP reduces the Social Security benefits for individuals who have worked in both covered and non-covered employment throughout their work history. WEP was enacted in 1983 to avoid unintentional windfalls.

The Social Security Administration (SSA) bases the benefits you are eligible for by an estimation of how much you earned based on the amount of Social Security payroll deductions made during your work history.

When an employee works at a non-covered job, the SSA shows that the individual earns $0 because no payroll deductions were being made. With a combination of non-covered and covered employment, the individual could have been a high earner throughout their work history but only a small amount of Social Security payroll deductions were submitted, indicating that the individual was a low earner.

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In the SSA formula for calculating benefits, they consider the person's highest-earning 35 years of covered earnings. Benefits are intended to replace a percentage of a worker's retirement earnings. They calculate a lower replacement amount at higher earnings levels.

A low earner gets a higher replacement rate. This could result in the high earner, who the SSA considers a low earner, getting more income than they should, which is considered a windfall.

According to the (SSA), to be affected by WEP, an individual must have:

  • worked in covered employment long enough to qualify for Social Security benefits.
  • worked in non-covered employment where Social Security payroll taxes were not paid.
  • earned a pension in the non-covered job.

This regulation not only applies to the individual worker's benefits but also associated spouse benefits. Survivor benefits are not affected by this regulation.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

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