How the Windfall Elimination Provision (WEP) Affects Your Social Security Benefits

Understanding the rules surrounding retirement benefits can be a challenge, especially for federal employees covered by the Civil Services Retirement Systems (CSRS). We often speak to Feds who are blindsided by an unexpected reduction in their Social Security benefits due to the Windfall Elimination Provision (WEP).

Since CSRS doesn’t include Social Security contributions, any Social Security benefits you earn through other work might be cut due to the WEP. Understanding how this provision works and its potential impact on your retirement can help you make informed decisions as you plan for your future.

What is the Windfall Elimination Provision (WEP)?

The Windfall Elimination Provision is a rule that alters how Social Security benefits are calculated for certain retirees. Specifically, it impacts individuals who have pensions from jobs that did not participate in the Social Security system, but still qualify for Social Security benefits based on other jobs where Social Security taxes were withheld.

The WEP was introduced in 1983 as a way to increase fairness in the Social Security system. Before the WEP, individuals who received a pension from employment not covered by Social Security could also receive full Social Security benefits, even though they hadn’t contributed to the system through a portion of their working years.

This created a situation where people with government pensions, like those under CSRS, could potentially receive a higher combined retirement income than those who paid into Social Security throughout their careers. The WEP was designed to adjust Social Security benefits to account for this discrepancy, aiming to prevent “double-dipping” and maintain equity among retirees.

How WEP Reduces Your Social Security Benefits

The WEP changes the formula to calculate Social Security Benefits. The standard formula replaces 90% of the first $1,174 of your average indexed monthly earnings (AIME), 32% of the amount between $1,174 and $7,078, and 15% of the remaining balance. This amount is then increased or decreased, depending on whether you start taking benefits before or after your full retirement age (FRA). 

If the WEP applies to you, the 90% factor is reduced to as low as 40%, depending on your years of substantial earnings under Social Security-covered employment. The adjustment results in a lower Social Security benefit amount.

See It in Action

Let’s look at a few examples to illustrate how the WEP might reduce your Social Security benefits. First, we’ll examine the case of a retired federal employee who worked under CSRS and also had a private-sector job where they paid into Social Security.

If their AIME is $1,000, the standard Social Security calculation would replace 90% of this amount, providing a benefit of $900. With WEP in effect, only 40% of the amount is replaced, reducing the benefit to $400 – a $500 decrease.  

Consider another employee with an AIME of $2,000. The standard calculation replaces 90% of $1,174 ($1,056.60) and 32% of the remaining $826 ($264.32), for a total of $1,320.92.

With the WEP in effect, this amount is reduced to 40% of $1,174 ($469.60), plus 32% of $826 ($264.32), for a total of $733.92 – a $586.98 decrease. However, in this case, maximum reduction limits apply.

WEP Maximum Reduction Limits

Each year, the Social Security Administration sets a maximum reduction limit. For those reaching full retirement age in 2024, the maximum WEP reduction is $557 per month. In the example above, the second retiree’s adjustment would be capped at this amount, rather than the calculated reduction of $586.98.