MEMBERS SHOULD BE AWARE OF SOCIAL SECURITY’S OFFSET RULES
If you are entitled to both Social Security and a Massachusetts public pension your Social Security benefit may be reduced.
There are two rules that may reduce your Social Security benefit. One, called the “Government Pension Offset” (GPO) applies only if you receive a government pension from a job not covered by Social Security and are eligible for Social Security benefits as a spouse or widow(er). This offset will reduce the amount of your Social Security spouse’s or widow(er)’s benefit by two-thirds of the amount of your government pension. Here is an example of the GPO: if you receive a monthly pension from the Holyoke Retirement System of $600, two-thirds of that, or $400, must be used to offset your Social Security spouse’s or widow(er)’s benefit. If you are eligible for a Social Security spouse’s or widow(er)’s benefit of $500 monthly, you will receive $100 per month from Social Security after the offset has been applied ($500 – $400 = $100). Depending on the amounts of the two benefits, it is entirely possible that your Social Security spouse’s or widow(er)’s benefit could be completely wiped out by GPO.
The second rule, called the “Windfall Elimination Provision” (WEP) affects the way your own Social Security retirement benefits are calculated when you receive your Massachusetts public pension. This rule affects a worker who spent most of his/her career in Massachusetts public service, but who also worked at other jobs where the worker paid Social Security taxes long enough to qualify for Social Security retirement benefits.
Prior to 1983, employees who spent time in jobs not covered by Social Security received the advantage of a formula under which lower-paid workers received larger benefits in relation to their earnings than higher paid workers. Because of this formula, those who worked only part of their lives in jobs covered by Social Security had their benefits figured as if they were long-term, low-wage workers. These workers received the advantage of the higher percentage Social Security benefits in addition to their public pension. The benefit formula was modified in 1983 to eliminate this inequity.
Here’s how the WEP formula works: Social Security benefits are based on the worker’s average monthly earnings adjusted for inflation. When Social Security computes your benefits, it separates your average earnings into three amounts and multiplies the figures using three factors. For example, for a worker who became 65 in 1995, the first $387 of average monthly earnings is multiplied by 90%; the next $1946 is multiplied by 32%; and the remainder by 15%. In the modified WEP formula, the 90% factor is reduced. For those who reached 62 or become disabled in 1990 or later, the 90% factor is reduced to 40%.
There are some exceptions to this rule. For example, the 90% factor is not reduced if you have 30 or more years of “substantial” earnings where you paid Social Security taxes. If you have 21 to 29 years of “substantial” earnings, the 90% factor is reduced to somewhere between 45 and 85 percent. “Substantial” earnings are a certain amount of yearly earnings required for a year of coverage for this provision.
A guarantee is provided to protect workers with relatively low pension. It provides that the reduction in the Social Security benefit under the modified WEP formula cannot be more than one-half of “that part of the pension attributable to earnings after 1956 not covered by Social Security.”
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