This document provides information about Social Security benefits in the United States. It discusses who is eligible for benefits, how benefits are calculated, and how non-covered pensions from government employment can affect Social Security benefits through provisions like the Windfall Elimination Provision and Government Pension Offset. The document also includes examples of how these provisions are applied to calculate benefit amounts.

1. Social Security Benefits America

2. Some Housekeeping Notes

3. You may wish to do additional research at our website about how Social Security benefits are affected by non-covered pensions: www.ssocialsecurity.gov/gpo-wep/ .

6. Frequently Asked Questions about how Social Security benefits are affected by non-covered pensions are available by clicking on “More” in the left hand column under Windfall Elimination Provision at www.socialsecurity.gov/gpo-wep/ . 2 calculators to compute how your non-covered pension will affect your benefit are available at: ww w.socialsecurity.gov/retire2/anyPIAWepjs04.htm

7. www.socialsecurity.gov/OACT/anypia.html Information about 218 agreements and Coverage can be answered by the State Social Administrator: Richard Beckstead

8. 1935 Retirement Insurance History - Social Security’s Programs 1956 Disability Insurance 1939 Survivors Insurance

9. Other Programs 1965 Medicare 2003 Medicare Part D

10. 50 million people Who Gets Benefits from Social Security? 31.5 million Retired Workers 2.9 million Dependents 7.1 million Disabled Workers, 1.8 million Dependents 4.6 million Widows/ Widowers 1.9 million Children of Deceased Workers 2/2008

11. Payments to Beneficiaries Workers & Employers Who Pays for Social Security?

12. Where Does the Money Come From? Payroll Tax 84% Trust Fund Interest 14% Taxation of Benefits 2% Social Security Trust Fund 2008

13. In 2016, Social Security Will Begin Paying More in Benefits than is Collected in Taxes

14. In 2016, Social Security Will Begin Paying More in Benefits than is Collected in Taxes At exhaustion in 2036, only about 78% of benefits could be paid.

15. Social Security Cost-of-Living Adjustments Effective Date Amount June 1975 8% June 1976 6.4% June 1977 5.9% June 1978 6.5% June 1979 9.9% June 1980 14.3% June 1981 11.2% June 1982 7.4% Dec 1983 3.5% Dec 1984 3.5% Dec 1985 3.1% Dec 1986 1.3% Dec 1987 4.2% Dec 1988 4% Dec 1989 4.7% Dec 1990 5.4% Dec 1991 3.7% Effective Date Amount Dec 1992 3% Dec 1993 2.6% Dec 1994 2.8% Dec 1995 2.6% Dec 1996 2.9% Dec 1997 2.1% Dec 1998 1.3% Dec 1999 2.5% Dec 2000 3.5% Dec 2001 2.6% Dec 2002 1.4% Dec 2003 2.1% Dec 2004 2.7% Dec 2005 4.1% Dec 2006 3.3% Dec 2007 2.3% Dec 2008 5.8%

16. Example: Worker with average pre-retirement income of $ 30,000 (Retiring at age 66 in 2009) 1st Year of Retirement Pension $ 13,000/ 50% Social Security $ 13,000/50% Inflation 3% per year Value of Inflation Protection

17. Value of Inflation Protection example continued: Worker with average pre-retirement income of $ 30,000 5 th Year of Retirement Pension $ 13,000/47% Social Security $ 14,632/53% 10 th Year of Retirement Pension $ 13,000/43% Social Security $ 16,962/57% 20 th Year of Retirement Pension $ 13,000/36% Social Security $ 22,796/64%

18. Life Expectancy for Those Age 65 Today Men Women U.S. Population 81 85 White 80 84 African Americans 79 83 Hispanic 85 88 Asian 84 88 American Indians 84 88

19. You Need to Work to Earn Social Security Credits Each $ 1,090 in earnings gives you one credit You can earn a maximum of 4 credits per year Example: To earn 4 credits in 2009, you must earn at least $ 4,360. Earning 40 credits throughout your working life will qualify you for a retirement benefit.

20. Your Age When You Retire Affects Your Benefits If You’re a Worker and Retire At age 62, you get a lower monthly payment permanently At your full retirement age, you get your full benefit You get an even higher monthly payment if you work past your full retirement age

21. In Addition to the Retiree, Who Else Can Get Benefits? Your Spouse At age 62 At any age if caring for child under 16 or disabled Divorced spouses may qualify Your Child Not married under 18 (under 19 if still in high school) Not married and disabled before age 22

22. Full Retirement Age Year of Birth Full Retirement Age 1937 or earlier 65 1938 65 & 2 months 1939 65 & 4 months 1940 65 & 6 months 1941 65 & 8 months 1942 65 & 10 months 1943 – 1954 66 1955 66 & 2 months 1956 66 & 4 months 1957 66 & 6 months 1958 66 & 8 months 1959 66 & 10 months 1960 or later 67

23. How Social Security Determines Your Benefit Social Security benefits are based on earnings Step 1 Your wages are adjusted for changes in wage levels Step 2 Find the monthly average of your 35 highest earnings years Step 3 Result is “average indexed monthly earnings”

24. If your average monthly earnings are = $ 5,200 Then your monthly benefit would be = $ 1974 Average Monthly Earnings $ 5,200 90% of First $ 744 = $ 670 32% of Earnings over $ 744 through $ 4,483 $ 3,739 = $ 1,196 ( $ 4,483- $ 744= $ 3,739) 15% of Earnings over $ 4,483 $ 717 = $ 108 ( $ 5,200- $ 4,483= $ 717) $ 5,200 $ 1974 Retirement Benefit Computation Example

25. What You Can Expect at Full Retirement Age % of Earnings Low Earner Average Earner High Earner 56% 41% 34%

26. Two Provisions Affecting Benefits WEP – Reduces Your Own Benefit GPO – Reduces Any Benefit You Might Be Due on Your Spouse’s Social Security Record Understanding Why These Laws Were Enacted Helps Understand How They Work

27. Points to Remember If you have 40 work credits, you will be eligible for a monthly Social Security retirement benefit If you have paid Social Security taxes on 30 or more “substantial” years of earnings, your benefit will not be reduced

28. If any part of your government pension is based on work not covered by Social Security, you may be affected by the Windfall Elimination Provision. Windfall Elimination Provision

29. What’s Social About Social Security? One goal of Social Security is to raise the standard of income for lower income workers

30. How Do We Do This? A weighted benefit formula A lower income worker receives a higher rate of return

31. If your average monthly earnings are = $ 5,200 Then your monthly benefit would be = $ 1,974 Average Monthly Earnings $ 5,200 90% of First $ 744 = $ 670 32% of Earnings over $ 744 through $ 4,483 $ 3,739 = $ 1,196 ( $ 4,483- $ 744= $ 3739) 15% of Earnings over $ 4,483 $717 = $ 108 ( $ 5,200- $ 4,483=$717) $ 5,200 $ 1,974 Computing Your Benefit

32. Function of Weighted Formula The formula gives proportionately higher benefits to a worker with a low lifetime earnings. A worker with a substantial period of non- covered work during his lifetime appears to have lower lifetime earnings than he actually does. By adjusting the formula, WEP prevents workers who receive a public pension based on noncovered work from receiving an unintended advantage from the formula.

33. Windfall Elimination Provision (WEP) - 2009 Normal Computation WEP Computation 90% of the First $ 744 40% of the First $ 744 32% of the Next $ 3739 32% of the Next $ 3739 15% of the Remainder 15% of the Remainder

34. Windfall Elimination Provision The modified formula applies to you if you reach 62 after 1985 and first become eligible after 1985 for a monthly pension based in whole or in part on work where you did not pay Social Security taxes.

35. Exception to the Windfall Elimination Provision % of First Factor Years of Coverage in Benefit Formula 30 or more 90 29 85 28 80 27 75 26 70 25 65 24 60 23 55 22 50 21 45 20 or less 40

36. Year Substantial Earnings 1937-50 $900 1951-54 $900 1955-58 $1,050 1959-65 $1,200 1966-67 $1,650 1968-71 $1,950 1972 $2,250 1973 $2,700 1974 $3,300

37. 1975 $3,525 1976 $3,825 1977 $4,125 1978 $4,425 1979 $4,725 1980 $5,100 1981 $5,550 1982 $6,075 1983 $6,675 1984 $7,050

38. 1985 $7,425 1986 $7,785 1987 $8,175 1988 $8,400 1989 $8,925 1990 $9,525 1991 $9,900 1992 $10,350 1993 $10,725 1994 $11,250

39. 1995 $11,325 1996 $11,625 1997 $12,150 1998 $12,675 1999 $13,425 2000 $14,175 2001 $14,925 2002 $15,750 2003 $16,125 2004 $16,275

40. 2005 $16,725 2006 $17,475 2007 $18,150 2008 $18,975 2009 $19,800

41. Where to Find the Chart Our Electronic Fact Sheet – Windfall Elimination Provision www.socialsecurity.gov/pubs/10045.html

42. Modified Formula $744 $744 X 90% X 40% $670 $298 $372

43. Largest Amount of Reduction in 2009 The greatest amount of reduction in the Social Security check if you are 62 in 2009 will be $372 per month

44. WEP Guarantee The WEP Guarantee limits reductions in the Social Security check to no more than ½ the amount of the non- covered government pension. The guarantee helps government workers who had low earnings on their government job.

45. Pension Based on Covered and Non-Covered Earnings If the non-covered pension is based on both covered and non-covered service, the amount to be used is calculated by prorating the pension to the number of non-covered service months. The WEP guarantee amount is compared to the modified formula amount. The smaller reduction applies.

46. Prorating the Pension Pension amount Multilpied by months of non-covered work Divided by total months of work used to compute the pension https://secure.ssa.gov/apps10/poms.ns f/subc hapterlisthapterlist!openview&res tirctedcategory=3006

47. 401(k) and WEP WEP is applied to the payments received from defined contribution plans (e.g. 401 (k), 403(b), or 457 plans) based on non-covered employment if the plan is the PRIMARY retirement plan. If the plan is a secondary plan, WEP applies only if funds contain employer contributions. Payments from optional or voluntary savings plan not subject to WEP.

48. Example Jake Oldham, born on 2/10/1947 has been receiving a non-covered pension since 1/04. In 3/09 he filed for Social Security retirement benefits. His gross non-covered pension amount is $2000 based on his work for the government from 1/76 through 12/03 (336 months). After averaging together his highest 35 years of earnings, his Average Indexed Monthly Earnings provides a monthly amount of $1000.

49. Example Continued He has 17 years of “substantial” Social Security earnings. After the Average Indexed Monthly Earnings figure is put into the replacement formula, his full benefit amount would be $751.00. After using the chart of “substantial” earnings, Jake has 20 or fewer years of substantial earnings, so he will only receive 40% of the first $744 in the formula, not the standard 90%.

50. Let’s Do The Math Step 1 744 x .40 = 297.60 Step 2 1000 – 744 = 256.00 Step 3 256.00 x .32 = 81.92 Step 4 297.60 + 81.92 = 379.50 Step 5 Round Down to $379.00 751 - 372 379 Greatest Amount of WEP Reduction in 2009

51. Between 20 and 29 Years of Substantial Earnings Let’s say Jake Oldham has 23 years of “substantial” earnings instead of 17. Step 1 744 x .55= 409.20 Step 2 1000 – 744 = 256.00 Step 3 256 x .32 = 81.92 Step 4 409.20 + 81.92 = 491.12 Step 5 Round Down to $491.00 Because he had 6 more years of “substantial” earnings in this example, he receives $112 per month more each month.

52. WEP Guarantee Figured by comparing the regular Social Security amount and reducing it by half of the non-covered pension If this amount is higher than the amount obtained by using the “modified” amount computed in the previous example, the higher amount is paid.

53. Guarantee Example June Fisher’s regular Social Security retirement amount is $540.00 Her non-covered pension is $900 Under the guarantee, her Social Security cannot be reduced more than $450.00 (1/2 of her non-covered pension) Social Security compares whether the “modified” formula or the “guarantee” provides the higher benefit

54. Type of Benefits Affected by WEP Social Security Retirement Social Security Disability

55. Will WEP Affect Me? 1. Is the type of benefit you will be filing for either Social Security retirement or disability benefits? If Yes, Go to Step 2 If No, WEP does not apply (WEP does not apply to survivors benefits)

56. Continued 2. Will you first be eligible after 1985 for the Social Security retirement or disability benefit? If Yes, go to step 3 If No, WEP does not apply (Those eligible for Social Security retirement or disability before 1985 will not be subject to WEP)

57. Continued 3. Will you be entitled to a pension that is based in whole or in part on non-covered employment after 1956? If Yes, go to Step 4 If No, WEP does not apply (WEP would not apply to pensions based on earnings before 1956)

58. Continued Using the “substantial” earnings table and your Social Security Statement, count up how many years of “substantial” earnings you have. Do you have 30 or more years? If Yes, WEP does not apply If No, WEP will apply. Use the chart that shows what the percentage that will be used will be (e.g. 29 years – 85%, 24 years – 60%, 20 years or less 40%) in your computation of Social Security retirement or disability benefits.

59. Spouse’s Benefits

60. Government Pension Offset (GPO) If you receive a government pension based on work not covered by Social Security, your Social Security spouse’s or widow(er)’s benefits may be reduced.

61. GPO & Spouse’s Benefits Spouses benefits were intended to provide income for spouses who had little or no income. If a spouse has worked and is insured for their own Social Security retirement benefit, they receive the difference between their own retirement amount and one-half of the spouse’s amount.

62. Spouse’s Benefits Before 1977, a spouse could have worked in non-covered work for a state, Federal or local government and yet receive a full Social Security spouse’s benefit. Effective 12/1/77, an offset was introduced so that government workers entitled to Social Security spouse’s benefits but had their own government pensions had those benefits considered when Social Security computed their spouse’s benefits.

63. Purpose of GPO To limit the level of payment of spouse’s benefits to those who are not completely dependent upon the worker. Congress believed that a person who worked long enough to become entitled to a government pension would not be completely dependent on the worker.

64. Example: $ 900 of government pension 2/3 = $ 600 Social Security spouse’s benefits = $ 500 No cash benefit payable by Social Security Government Pension Offset (GPO) Spouse’s Benefits 2/3 of amount of government pension will be used to reduce the Social Security spouse’s benefits

65. Comparison Diane (No Govt Work) Mary (GPO) Own SSA Benefit $300 Govt Pension $300 Spouse Benefit $600 SSA Spouse Ben $600 $600 - $300 = $300 $300 pension = $300 Spouse + $300 Own= $300 X .6667= $600 Total $200 Offset $600 - $200 = $400 $300 Govt Pension + $400 SSA Spouse= $700 Total

66. Exceptions to GPO Filed for Social Security benefits prior to April 1, 2004, or retired prior to July 1, 2004, and whose government pension is based on a job where he was paying Social Security taxes on the last day of employment. After April 1, 2004 receives a government pension and had been covered under both Social Security and the government system throughout the last 60 months of service. Spouse receiving a government pension not based on own work

67. What Type of Social Security Benefits Are Affected by GPO? Spouses Widows Widowers GPO Calculator: http://www.socialsecurity.gov/retire2/gpo-calc.htm

68. FAQS About WEP & GPO Q: Are dependents affected by WEP? A: Since dependents benefits are derived from the worker’s benefit, WEP affects dependents benefits. Example: If John had 10 years of substantial coverage, his retirement amount would be $751. Since he has less than 20 years, his amount will be $379. His spouse would receive half of $379 not $751.

69. FAQS Continued Q: What is the difference between WEP & GPO? A: Both affect people with pensions from noncovered employment. WEP affects the retirement or disability benefits of a person who receives a pension from noncovered work. A modified formula is used. If WEP applies, benefits are lower, but never totally eliminated. GPO affects the Social Security spouse’s benefits of a person who receives a pension from noncovered work. The Social Security payment is reduced by 2/3 of the government check. Under GPO, it is possible for the benefit to be totally eliminated.

70. FAQS Continued Q: I have heard that if I am exempt from GPO, I will also be exempt from WEP. Is this correct? A: No. GPO applies to Social Security spouses and survivors benefits and WEP applies to the worker’s Social Security retirement benefit.

71. FAQS Continued Q: Are the benefit estimates on my Social Security Statement accurate for government workers? A: Since Social Security cannot know if you are eligible for a pension from non-covered earnings, the estimates are not adjusted to consider WEP. Use the WEP calculator to obtain an accurate estimate.

72. FAQS Continued Q: Is my Social Security retirement or disability benefit reduced if my spouse receives a pension based on work not covered under Social Security? A: No, your own retirement or disability check won’t be reduced because of her noncovered pension, but if you receive spouse’s benefits from her benefit record , your spouse’s benefit could be affected.

73. FAQS Continued Q: If I withdraw my contributions from the noncovered pension system, would I still be subject to WEP? A: Yes. The withdrawal of contributions would be considered as a lump-sum payment and be pro-rated on a monthly basis. Only if you withdrawn all of your contributions and relinquished all rights to the pension would WEP be eliminated.

74. FAQS Continued Q: If I withdraw my contributions from the noncovered pension system and give up all rights to the pension , can I avoid GPO? A: Yes. If you withdraw your contributions and give up all rights to the noncovered pension before you begin receiving payments, you can avoid GPO.

75. FAQS Continued Q: Is my Social Security survivor’s benefit affected if I also receive a pension based on my deceased spouse’s noncovered work? A: A pension you receive based on your deceased spouse’s noncovered work will not affect your Social Security survivor’s benefit. However, if you are entitled to a widow’s or widower’s benefit under Social Security and you are also entitled to a government pension based on your own uncovered earnings, the government pension offset will reduce your Social Security survivors benefit by up to 2/3 of your government pension.

76. You Can Work & Still Receive Benefits You Can If You Make More, If You Are Make Up To Some Benefits Will Be Withheld Under Full Retirement Age $ 14,160/yr. ( $ 1,180/mo.) $ 1 for every $ 2 The Year Full Retirement Age is Reached $ 37,680/yr. ($3,140/mo.) $ 1 for every $ 3 Month of Full Retirement Age and Above No Limit No Limit

77. What Will You Need When Applying for Your Social Security Benefits? Social Security number for each applicant Proof of age (birth certificate) Latest W-2 or self-employment tax return Earnings estimate Bank information for direct deposit Information about marriages/divorces Information about military or railroad service

78. Who Can Get Survivors Benefits? Widow or Widower: Reduced benefits at age 60 If disabled as early as age 50 At any age if caring for child under 16 or disabled Divorced widows/widowers may qualify Your Child if: Not married under age 18 (under 19 if still in high school) Not married and disabled before age 22

79. Parents Age 62 and was receiving at least one-half support from deceased worker Lump Sum Death Payment ( $ 255) Most spouses or children Other Survivors Benefits

80. Social Security’s Disability Definition: A medical condition preventing substantial work for at least 12 months, or expected to result in death. The determination also considers age, education & work experience.

81. Who Can Get Disability Benefits? Worker Must have paid into Social Security five out of last 10 years Spouse At age 62 At any age if caring for child under 16 or disabled Divorced spouses may qualify

82. Who Can Get Disability Benefits? Child Not married under age 18 (under 19 if still in high school) Not married and disabled before age 22

83. 65 & older -or- Receiving Social Security disability benefits at least 24 months -or- Permanent kidney failure -or- Amyotrophic Lateral Sclerosis (ALS) Who Can Get Medicare?

84. When Can I Sign Up for Medicare? Medicare Enrollment Periods: Initial - at age 65 Special - if still working General - January-March

85. Medicare Coverage Part A Hospital Insurance Covers most inpatient hospital expenses. 2009 Deductible $ 1,068 Part B Supplementary Medical Insurance Covers 80% doctor bills & other outpatient medical expenses after 1 st $ 135 in approved charges. 2009 Monthly Premium $ 96.40 Part D Medicare Prescription Drug Plan Covers a major portion of prescription drug costs for Medicare beneficiaries. 2009 average Monthly Premium $ 37.00

86. How Will the Prescription Drug Plan Affect You? You will pay the first $ 295 (called an “annual deductible”). Medicare will pay 75% of costs above $ 295 up to $ 2,700 in drug spending. You will pay only 25% of these costs. You will pay 100% of the drug costs above $ 2,700 until you reach $ 4,350 in out-of-pocket spending. Your out-of- pocket spending includes the annual deductible and prescription co-payments. It does not include the monthly premiums you pay for your drug plan. Medicare will pay about 95% of the costs after you have spent $ 4,350.

87. Extra Help Could Further Reduce Medicare Prescription Drug Costs Extra help is available for low income beneficiaries to pay for part of the Medicare Part D monthly premiums, annual deductibles and prescription co-payments. The extra help could be worth more than $ 3,600 per year. Go online to www.socialsecurity.gov to apply for extra help.

88. For More Medicare Information 1-800-MEDICARE (1-800-633-4227) TTY 1-877-486-2048 www.medicare.gov

89. What Should You Do to Prepare for Your Retirement? Get estimates of benefits using different retirement ages and wage estimates www.socialsecurity.gov

90. Social Security’s Online Services Retirement & Disability Applications Apply for Extra Help Retirement/Survivors/Disability Planner Request a Statement Change of Address Medicare Card Replacements Request a Benefit Verification Letter Start or Change Direct Deposit

97. The Social Security Statement

98. The Social Security Statement The Statement provides you with estimates of monthly Social Security retirement, disability and survivors benefits The Statement allows you to check your earnings history for accuracy

99. The Social Security Statement