9 Replies Latest reply on Oct 20, 2013 12:07 PM by Shorttimer

    Social security, WEP and defined contribution plans

    BigDogMom7
      I work in higher ed in Colorado, which switched to a defined contribution plan in 1993.  I worked more than 40 quarters before becoming a state employee, so I will be eligible for social security.  I know that retirees receiving a defined benefit pension from PERA (similar to CalPERS) are subject to the Windfall Elimination reduction of social security, but my HR dept. and TIAA-CREF cannot tell me if I will be.  The local social security office ALSO says they can't tell me; I'll have to wait until I retire and then apply for social security and see what happens.  Does anyone have any experience with this?  The social security website only refers to "pensions."  
        • Re: Social security, WEP and defined contribution plans
          MyR Community Manager
          BigDogMom7,
           
          Thank you for creating a new discussion thread! We appreciate and enjoy your participation in the MyRetirement.org online community and look forward to your future contributions.
          • Re: Social security, WEP and defined contribution plans
            Flyfisher
            I retired from Federal and I too had more than 40 quarters under social security prior to going to work for the feds.  I am under CSRS, the old federal pension plan that paid nothing towards s.s. but did medicare.
            The way it works for us feds under CSRS with 40 quarters prior to fed service, is we receive 40% under WEP of our s.s.  In other words, if you look at your s.s. statement and say it states you will receive $1500/month at age 66 and you apply at that time, you will receive $600/month ($1500 x 40%).  But if you work after you retire from CSRS, for every year you make over the minimum established annual amount, I believe it's about $5000, you will increase your s.s. benefit by 5 percentage points.  That is if you haven't started receiving s.s. at that time.  So...if you work say 2 years after your retirement annuity started but before you started s.s., you would receive 50% (40%+5%+5%) of that $1500 or whatever it is at the age you would start drawing s.s.
            I hope this clears it up "somewhat".  I believe CSRS is similar to your pension and the WEP.
              • Re: Social security, WEP and defined contribution plans
                RAF
                This post is not quite accurate. First, the entire social security is not reduced by 50% only the first $791 (in 2013) of your monthly entitlement is reduced. Second, this reduction applies unless you have at least 20 substantial years of earnings (the amount is different for every year). For every year of substantial earnings under social security that exceeds 20, the 50% reduction is reduced by 5% a year until you reach 30 years of substantial earnings. Then there is no reduction for WEP.
              • Re: Social security, WEP and defined contribution plans
                jkom51
                Yes, it's a real pain in the butt, isn't it? But it's because not only is WEP a proportional penalty, e.g., the more you get in pension the bigger the hit; but also because there are a few enlightened legislators, led by CA's Diane Feinstein, who are trying to amend WEP so that those penalties will be removed or at least lessened.
                 
                I'd suggest you write your Senator and House Rep. to ask them to support her bill; she's been trying to get some push behind it for years.
                 
                All you can do is to estimate when you are going to retire, and use your union contract's current figures to give a VERY rough estimate of what your pension might be. You can then check the IRS website and will see how much of a penalty you'd incur.
                 
                10 yrs ago we took a look per above and had to assume spouse would get the max penalty of a 60% reduction in SS when he applies at age 66. It'll pay for his Medicare Part B...maybe!
                • Re: Social security, WEP and defined contribution plans
                  RAF
                  If you get an annuity from work in which Social Security was not withheld then you are subject to the WEP. Go to the social security website and search for WEP and there is a good fact sheet on this. Basically you will have the first 600-700 of your social security reduced from 90% to 40% unless you have 20 or more years of substantial earnings under social security.
                    • Re: Social security, WEP and defined contribution plans
                      kwendy
                      I too work for higher ed in Colorado ad participate in Defined Contribution Plan.  I have 25 years in Soc Sec.  GO AND TALK WITH LOCAL Soc Sec office.  They can tell you exactly what to expect for your particular situation.  Much better than the website!  What I have been told by visiting my local Soc Sec office is
                      !) You must have at least 30 years of "significant contribution" to Soc Sec to not be impacted by WEP.  The closer you are to the 30 years, the lower the impact. (The minimum quarters stated earlier is correct to qualify for Soc Sec). 
                      2) WEP does not kick in until you start your DCP withdrawal (i.e. once you leave employment).  You can start Soc Sec @ 66 (or whatever your personal Full Retirement Age is) and get the full amount but when you leave your higher ed employment, then WEP kicks in and your Soc Sec will drop (mine will drop by about 20%).  
                      3) all the rules of Soc Sec apply as to waiting until 66 to have more choices later in Soc Sec but you can start drawing even while working w/o penalty (other than the longer you wait your rate will go up by about 8%/year until 72).  As of 66 no limitation on $$ you can earn.  The year you will turn 66 has a different $$ rather that the $15K+ number. 
                      Hope this helps.
                       
                    • Re: Social security, WEP and defined contribution plans
                      Shorttimer
                      I too am affected by the Windfall Elimination Provision Act. The key is - how many years you payed into Social Security. I worked approximately 28 years payed into Social Security but worked 17 years in local government where I didn't pay into Social Security. I receive a defined pension from the local gov't employment but receive a reduced SS amount because of the WEP. FYI, the WEP is eliminated if you payed into Social Security at least 30 years. Therefore, you would receive your full entitlement. Hope this helps and yes, you have to wait to apply for SS for the calculation. Although there is a estimated calculator on SS web-site but you have to have your earnings statements available. First SS check came in this week.
                       
                      • Re: Social security, WEP and defined contribution plans
                        BigDogMom7
                        But since it is a defined contribution plan, I do not HAVE to take it as an annuity.  If I never do an annuity (but just do withdrawals as needed, for example, or interest only), then will WEP still kick in"?
                          • Re: Social security, WEP and defined contribution plans
                            Shorttimer
                            If I understand you correct - you are asking - "if I don't take the defined pension contribution will I still be affected by the WEP"? The defined pension plan has nothing to do with WEP. It does have to do with the years you didn't pay into SS because of a pension plan that you didn't pay into SS. In other words, your substantial earnings over the course of your working years is what SS bases it's calculation on. As I said before, I worked approx. 28 years payed into SS in addition to 17 years for local govt. Those 17 years show a (0) substantial earnings calculation on my statements. The two years I came up short of the 30 years required to avoid a reduction in my SS benefit affected by SS check by about $200. Whether you take your defined pension annuity or not when you retire, has no bearing on SS. As long as you are of full retirement age 66 or 67 based on what year you were born and apply for SS benefits, you can earn as much as you like without getting hit with a penalty. Again, if you paid into SS with substantial earnings for 30 years, the WEP is eliminated entirely.