When it comes to Social Security benefits, private-sector and public-sector employees are not created equal. For those falling under the latter category, there are two rules that may reduce the amount of Social Security benefits you will receive – the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Many people assume that these provisions were put in place to prevent people from “double dipping.” While that may be one reason, it’s not the main reason. Rather, these provisions were designed to treat everyone as if Social Security is their only pension source.To understand what WEP and GPO are and why they exist, it’s important to know that the Social Security Act of 1935 did not include federal, state and local public-sector employees. Today, all but 15 states cover their public-sector employees with Social Security. In the states that don’t – including Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island and Texas – public sector employees rely on state-run pensions.

One other thing to keep in mind is that when Social Security was enacted, the majority of households had one working spouse and one stay-at-home spouse. The original laws were designed to provide benefits to the non-working, stay-at-home spouse. Those demographics have changed, and it’s no longer rare for both spouses to be earning the maximum benefit. The WEP reduction only applies to “worker” retirement benefits – not spousal, ex-spousal or survivor benefits – and is limited to 50% of your public-sector pension. WEP reduces but does not eliminate your Social Security benefit. No reduction in Social Security benefits will occur until you start collecting your public-sector pension. WEP, which came about via the Social Security Amendments of 1983, can impact those who earn a pension from an employer who did not withhold Social Security taxes and who qualify for Social Security benefits. In order to understand why the WEP was initiated, you have to understand how Social Security benefits are calculated. When Social Security calculates benefit amounts, the calculation provides a greater benefit – percentage wise – for those who have lower earnings. This is the “social” aspect of Social Security. The way benefits are calculated is designed to give lower-paid employees a higher monthly benefit as a percentage of their income than a higher paid employee.

For example, let’s say you work as a public school teacher covered under a state pension, but you work part-time in the Social Security system and make a small salary tutoring. When you apply for Social Security benefits, what do you look like to Social Security? A lower-earning person, but that’s not the case. Therefore, public sector employees would receive a disproportionally larger Social Security benefit. If all of your earnings were in the Social Security system, the calculation would provide a lower benefit, percentage wise. The WEP is designed provide the same benefit as if all of your earnings were in the Social Security system.