Federal Government Employed

Federal Government Employment

Until 1984, employment by the Federal government was covered under the Civil Service Retirement System (CSRS) and not by Social Security. If you worked for a Federal agency during these years, you did not pay Social Security tax on your earnings and those earnings are not shown on your record.

In 1984, a second retirement system–the Federal Employees Retirement System, or FERS–was introduced. People who began working for the Federal government in 1984 or later are covered by FERS instead of CSRS. Also, some workers who had been covered by the CSRS program chose to switch to the FERS program when it became available. Work under FERS is covered by Social Security.

If you stayed under the CSRS program after 1983, you still are not covered by Social Security but you are covered under the Medicare program and you pay Medicare taxes on your Federal earnings.

If you work for a federal, state or local government agency, a nonprofit organization or in another country, you may be eligible for a pension based on earnings not covered by Social Security.

A pension based on earnings not covered by Social Security can affect the amount of your Social Security benefit. We do not know whether you are eligible for such a pension, so the benefit estimates you have received may not have been adjusted for such a possibility.

Our Windfall Elimination Provision fact sheet explains whether you might be affected.
Your Social Security retirement or disability benefits may be reduced

If you work for an employer who does not withhold Social Security taxes from your salary, such as a government agency or an employer in another country, the ­pension you get based on that work may reduce your Social Security benefits.

The Windfall Elimination Provision affects how the amount of your retirement or disability benefit is calculated if you receive a pension from work where Social Security taxes were not taken out of your pay. A modified formula is used to calculate your benefit amount, resulting in a lower Social Security ­benefit than you otherwise would receive.

Windfall Elimination Provision

When your benefits may be affected

The Windfall Elimination Provision primarily affects you if you earned a pension in any job where you did not pay Social Security taxes and you also worked in other jobs long enough to qualify for a Social Security retirement or disability benefit.

For example, this provision affects Social Security ­benefits when any part of a person’s federal service after 1956 is covered under the Civil Service Retirement System (CSRS). However, federal service where Social Security taxes are withheld (Federal Employees’ Retirement System) will not reduce your Social Security benefit amounts. The Windfall Elimination Provision may apply if:

• You reached 62 after 1985; or
• You became disabled after 1985; and
• You first became eligible for a monthly pension based on work where you did not pay Social Security taxes after 1985, even if you are still working.

Why a different formula is used

Social Security benefits are intended to replace only a percentage of a worker’s pre-retirement earnings. The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent.

Before 1983, people who worked mainly in a job not covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers. They had the advantage of receiving a Social Security benefit representing a higher percentage of their earnings, plus a pension from a job where they did not pay Social Security taxes. Congress passed the Windfall Elimination Provision to remove that advantage.

How does it work

Social Security benefits are based on the worker’s average monthly earnings adjusted for inflation. We separate your average earnings into three amounts and multiply the amounts using three factors. For example, for a worker who turns 62 in 2011, the first $749 of average monthly earnings is multiplied by 90 percent; the next $3,768 by 32 percent; and the remainder by 15 percent. The sum of the three amounts equals the total monthly payment amount.

The 90 percent factor is reduced in the modified formula and phased in for workers who reached age 62 or became disabled between 1986 and 1989. For those who reach 62 or became disabled in 1990 or later, the 90 percent factor is reduced to 40 percent.

There are exceptions to this rule. For example, the 90 percent factor is not reduced if you have 30 or more years of “substantial” earnings in a job where you paid Social Security taxes. See the first table that lists the amount of substantial earnings for each year.

The second table shows the percentage used depending on the number of years of substantial earnings. If you have 21 to 29 years of substantial earnings, the 90 percent factor is reduced to between 45 and 85 percent.

Some exceptions…

The Windfall Elimination Provision does not apply if:

• You are a federal worker first hired after December 31, 1983;
• You were employed on December 31, 1983, by a nonprofit organization that did not withhold Social Security taxes from your pay at first, but then began withholding Social Security taxes from your pay;
• Your only pension is based on railroad employment;
• The only work you did where you did not pay Social Security taxes was before 1957; or

You have 30 or more years of substantial earnings under Social Security.

The Windfall Elimination Provision does not apply to survivors benefits. However, benefits may be reduced for widows or widowers because of another provision of the law. Ask for Government Pension Offset (Publication No. 05-10007).

.. and a guarantee

If you get a relatively low pension, you are protected. The reduction in your Social Security benefit cannot be more than one-half of the amount of your pension that is based on earnings after 1956 on which you did not pay Social Security taxes.

Government Pension Offset

A law that affects spouses and widows or widowers

If you receive a pension from a federal, state or local government based on work where you did not pay Social Security taxes, your Social Security spouse’s or widow’s or widower’s benefits may be reduced. This fact sheet provides answers to questions you may have about the reduction.

How much will my Social Security benefits be reduced

Your Social Security benefits will be reduced by two-thirds of your government pension. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits. For example, if you are eligible for a $500 spouse’s, widow’s or widower’s benefit from Social Security, you will receive $100 per month from Social Security ($500 – $400 = $100).

If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government work.

Why will my Social Security benefits be reduced

Benefits we pay to wives, husbands, widows and widowers are “dependent’s” benefits. These benefits were established in the 1930s to compensate spouses who stayed home to raise a family and who were financially dependent on the working spouse. But as it has become more common for both spouses in a married couple to work, each earned his or her own Social Security retirement benefit. The law has always required that a person’s benefit as a spouse, widow or widower be offset dollar for dollar by the amount of his or her own retirement benefit.

In other words, if a woman worked and earned her own $800 monthly Social Security retirement benefit, but she also was due a $500 wife’s benefit on her husband’s Social Security record, we could not pay that wife’s benefit because her own Social Security benefit offset it. But, before enactment of the Government Pension Offset provision, if that same woman was a government employee who did not pay into Social Security, and who earned an $800 government pension, there was no offset, and we were required to pay her a full wife’s benefit in addition to her government pension.

If this government employee’s work had instead been subject to Social Security taxes, any Social Security benefit payable as a spouse, widow or widower would have been reduced by the person’s own Social Security retirement benefit. In enacting the Government Pension Offset provision, Congress intended to ensure that when determining the amount of spousal benefit, government employees who do not pay Social Security taxes would be treated in a similar manner to those who work in the private sector and do pay Social Security taxes.

When won’t my Social Security benefits be reduced

Generally, your Social Security benefits as a spouse, widow or widower will not be reduced if you:

• Are receiving a government pension that is not based on your earnings; or
• Are a federal (including Civil Service Offset), state or local government employee whose government pension is based on a job where you were paying Social Security taxes; and
  • you filed an application for benefits before April 1, 2004; or
  • your last day of employment (that your pension is based on) is before July 1, 2004; or
  • you paid Social Security taxes on your earnings during the last five years of government service. (Under certain conditions, fewer than five years may be required for people whose last day of employment falls after June 30, 2004, and before March 2, 2009.)

Also, there are other situations where Social Security benefits as a spouse, widow or widower will not be reduced; for example, if you:

• Are a federal employee who elected to switch from the Civil Service Retirement System (CSRS) to the Federal Employees’ Retirement System (FERS) after December 31, 1987; and
  • you filed an application for benefits before April 1, 2004; or
  • your last day of service (that your pension is based on) is before July 1, 2004; or
  • you paid Social Security taxes on your earnings for five years or more during the period beginning January 1988 and ending with the first month of entitlement to benefits; or
• Received or were eligible to receive a government pension before December 1982 and meet all the requirements for Social Security spouse’s benefits in effect in January 1977; or

Received or were eligible to receive a ­federal, state or local government pension before July 1, 1983, and were receiving one-half support from your spouse.