The Windfall Elimination Provision (WEP) that reduces Social Security benefits because of the receipt of pensions based upon income not covered under Social Security has been receiving a fair amount of attention lately, perhaps because many of those affected are in red states which are more likely to exclude state employee wages from the F.I.C.A. tax, giving them state pensions instead. The Social Security Bulletin, the agency's scholarly publication, has an article on the WEP and options for replacing it.
"...because many of those affected are in red states."
ReplyDeletehttps://en.wikipedia.org/wiki/List_of_largest_pension_schemes_in_the_United_States
Only 7 of the 24 states represented by the largest pension plans are "red".
The only reason red states would support a change -because it would have to be balanced out elsewhere - is that it would allow for them to enact state legislation for "pension reform" -i.e. cutting pensions further.
And in the end, the article's solution is to return the windfall? Before any bill gets passed, Congress would have to address this: Why should workers who pay a smaller portion of their wages into Social Security while paying a higher portion or their non-covered work into a more favorable retirement plan be rewarded with a windfall?
If the proposals actually addressed need instead of "unfairness", then it would be different. No one would balk at removing WEP if its application is solely the cause for reducing retirement or disability income below the federal poverty level. But removing it to restore a windfall?
It’s not so much a red-and-blue thing as an illustration of the mantra, “All politics are local.” Texans are very powerful in Congress, and very nearly derailed the 2003 technical corrections act that curbed the notorious “last-day loophole” by which many Texas teachers skirted the government pension offset (GPO, another provision that like WEP targets noncovered pensioners) by getting themselves hired for just one day as custodians or cafeteria workers. They’ve never gotten over that episode.
ReplyDeleteSometimes they can get allies of both parties from other states with significant noncovered pensioners. (For an overview of where WEP-affected beneficiaries live, check out the oldie-but-goodie https://www.ssa.gov/policy/docs/ssb/v68n2/v68n2p21.html. But keep in mind that federal pensioners live everywhere, and will gradually cease being affected by WEP because the 1983 Amendments put new federal employees into Social Security.)
To make WEP proposals reasonably cost-neutral, sponsors have to create losers to offset the winners. According to the actuaries’ estimate of the Brady bill (pushed by Kevin Brady, R-TX who’s ranking minority on Ways and Means), the proposal would help most of the 1.6 million people currently affected by WEP, but at the price of hurting most of the 18 million people who spent a brief stint in noncovered state or local employment but not enough to earn a pension. The question is whether the losers would squawk.