Bill to Strike Social Security Windfall Provision Is Back

As the report details, current windfall elimination provision supporters argue that the modified formula represents a reasonable means to prevent overgenerous payments and unintended benefits to people who have earnings not covered by Social Security and receive pensions from non-covered work.

Opponents of the WEP, on the other hand, argue that the provision substantially reduces a benefit that workers may have included in their retirement plans, and it reduces benefits disproportionately for lower-earning households. According to the CRS analysis, others criticize the current WEP formula as an imprecise way to determine the actual windfall when applied to individual cases.

The WEP and Its Consequences

As explored in the CRS report, the Social Security benefit formula generally cannot distinguish between workers who have low career-average earnings (because they worked for many years at low earnings in Social Security-covered employment) and workers who appear to have low career-average earnings (because they worked for many years in jobs not covered by Social Security).

“Consequently, workers who split their careers between covered and non-covered employment — even highly paid ones — may also receive the advantage of the weighted formula,” the CRS report states. “The reduction in initial benefits caused by the WEP is designed to place affected workers in approximately the same position they would have been in had all their earnings been covered by Social Security.”

According to the report, the impact of the WEP on low-income workers has been the subject of substantial ongoing debate. To help stakeholders understand the argument, the CRS analysis points to broadly cited academic work that has suggested the WEP is a “regressive” feature in the Social Security formula for two main reasons.

The first reason is that the WEP adjustment is confined to the first bracket of career-average earnings in the benefit formula ($1,115 in 2023), and it thus causes a proportionally larger reduction in benefits for workers with lower earnings and benefit amounts than for others. Second, a high earner is more likely than a low earner to cross the “substantial work” threshold for accumulating years of covered earnings. In 2023, this threshold is $29,700.

Because of these factors, the CRS analysis explains, the academic work suggests that the WEP does reduce benefits disproportionately for lower-earning households. And in fact, for some high-income households, applying the WEP to covered earnings even provides a higher replacement rate than if the WEP were applied proportionately to all earnings, both covered and non-covered.

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