A press release:
House Ways and Means Social Security Subcommittee Chairman Sam Johnson (R-TX) announced today that the Subcommittee will hold a hearing on “Social Security and Public Servants: Ensuring Equal Treatment.” The hearing will focus on Social Security provisions that affect certain public employees, as well as proposals for calculating public employees’ benefits in a proportional manner. The hearing will take place on Tuesday, March 22, 2016 in B-318 Rayburn House Building, beginning at 10:00 AM.
There has been substantial agitation in Johnson's home state of Texas over the application of the Windfall Elimination Provision which reduces Social Security benefits because of the receipt of pension benefits from wages not covered by Social Security. Apparently, the wages of teachers in Texas are not covered by Social Security.
I'm mildly surprised that Johnson cares. In my state, North Carolina, the Republican Party is openly, bitterly, angrily hostile towards teachers. I think it's the same in many other states.
8 comments:
If one will do the history, one will come to find out that most of these cases are ones where the teachers originally opted out of Social security and now want back in. Unfortunately they have not paid into the plan at all.
Every teacher is told this when they start teaching and paying into the TRS (Teachers Retirement System)in the state I live. Every teacher applying for retirement acts surprised that they are not going to get SSA Retirement. Some that have worked other jobs in the past or did teaching not covered under TRS make enough to pay the Medicare Part B Premium, but most do not. EVERY one of them acts surprised and outraged.
I explained it to them this way, its a checking account, you didn't deposit any money in this checking account, you put it in a checking account in another bank. There is nothing in this account to pay you with.
I was not a teacher but worked under a PERA system. Despite that my non PERA earnings easily qualified me for a retirement check from Social Security but I am not taking it until 70. I have Medicare because I paid medicare taxes. If you spend 40 years in the PERA system then fine but if you spent 20 in PERA and another 20+ in the SSA systems then I do not see why I should be penalized.
I seem to recall that there was a loophole that allowed Texas teachers to skirt the windfall offset by opting into the Social Security system just prior to retirement and that loophole was closed by requiring the option to be made five years before retirement and that this change is what has folks in Texas upset. Perhaps it wasn't only limited to Texas?
The reason for the penalty is that Social Security benefits are higher, relative to income and taxes paid, for lower income people. Only Social Security income is considered. If only half of your lifetime earnings were covered by Social Security, then for the purposes of calculating benefits, your average income was only half of your actual earnings. This gives you a higher return on your Social Security income than someone with the same income who was in Social Security for all their income. I think this is fair. If you have more than 20 years in Social Security, the penalty goes down, reaching 0 at 30 years or more (presumably because Social Security benefits only use the highest 35 years of income, so your non-SSA income becomes unimportant as you approach 35 SSA years).
8:16 is spot on. It's not a penalty to fall under this WEP provision, but that's how its portrayed. In reality, it's just a different percentage Unser to calculate the return on your earnings. As stated above, when you work for an employer who doesn't pay Social Security Tax, the agency see you as a low wage earner...which is usually not the case.
The average wage earner draws everything out they ever paid in their working lifetime in Social Security taxes between 3 to 4 years after they begin receiving benefits. Within 6-7 years, they've drawn out everything they ever paid plus everything their lifetime employer(s) ever paid in Social Security payroll taxes on them as employees. Of course, for very high earners, the time periods are stretched a little more, but not as much as you'd think given the flat cap on Social Security taxable wages. The self-employed of course pay twice as much in Social Security taxes up front, but they also get to make it up by deducting half of what they pay in Social Security taxes by taking a deduction in that amount. In the end, it usually evens out within this 3-7 year pattern.
Guess what? Folks who have been subjected to the windfall elimination provision also fall square within this same general 3-7 year pattern. They usually paid limited Social Security taxes, and draw out those limited taxes everything within the same timeframes once they become Social Security beneficiaries even after WEP has been applied.
In other words, folks subject to WEP (which include my mother, by the way) are paid exactly what they are due. The offset is fair, period.
The Texas loophole was for the Government Pension Offset (GPO) which affects benefits spouses and widows. The Texas school systems went crazy attempting to allow employees to avoid the GPO law, which is why the law was changed and they can't do it anymore.
Brady's bill, on which the committee is holding hearings, is simply awful. It does not repeal the WEP; rather, it completely changes the methodology for calculating the WEP reduction. There will be some winners with the new formula, who will get a higher benefit than under current law, but there will be many more losers than winners. His bill completely removes protections in current law for people with 30 or more years of substantial covered SS earnings and for those who worked only a few years in non-covered employment and are receiving zero (or very low) pensions based on that employment - obviously these two groups are closely related. As a result, a great many people with long work histories covered under SS, but who also have just a few years of non-covered employment, will see benefit reductions under this bill. And unlike Obama's proposal along similar lines, which delays implementation until 2027, Brady's bill takes effect for those becoming eligible for SS benefits in 2017, i.e. for current 61 year-olds who have no way of making up for the diminishment of their benefit. I am a Finance professor who understands SS quite well and I am not making this up. If you don't believe me, Google Social Security Commissioner Goss's testimony on the bill - even he admits it will reduce the SS benefits of millions of people retiring in the next few years, because lots of people have done short stints in non-covered employment at some point in their lives and most such individuals will be harmed if this passes. Talk about putting lipstick on a pig!
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