The Congressional Research Service (CRS) has released a report concerning the proposals for a new proportional formula for use with the windfall elimination provision (WEP).
Specifically, in “The Windfall Elimination Provision (WEP) in Social Security: Proposals for a New Proportional Formula” the CRS discusses two bills before the House of Representatives that would fine-tune that formula.
About the WEP
The WEP is a modified benefit formula that reduces the Social Security benefits of certain retired or disabled workers who are also entitled to pension benefits based on earnings from jobs that were not covered by Social Security and thus not subject to the Social Security payroll tax. It is intended to remove an advantage or “windfall” that these workers would otherwise inadvertently receive due to the interaction between the regular Social Security benefit formula and the workers’ relatively short careers in Social Security-covered employment.
About the Proportional Formula
The report notes that shortly before the WEP was enacted in 1983, the National Commission on Social Security Reform (also known as the Greenspan Commission) described two different methods of eliminating windfall benefits:
1. The current-law method of adjusting the first replacement factor (90%).
2. A proportional formula that would apply the regular Social Security benefit formula to all past earnings from both covered and noncovered employment. The resulting benefit would then be multiplied by the ratio of career-average earnings (average indexed monthly earnings, or AIME) from covered employment only to career-average earnings (AIME) from both covered and noncovered employment.
If the proportional formula had applied to current beneficiaries in 2018, says the CRS, the Social Security Administration’s Office of the Chief Actuary (OCACT) estimates that about 1.1 million beneficiaries affected by the current WEP (or 69%) would have received a higher benefit and about 500,000 (or 31%) would have received a lower benefit. But that’s not all—13.5 million beneficiaries with some noncovered earnings who were not affected by the current WEP also would have received a lower benefit.
Bills that Would Affect the Proportional Formula
Two bills introduced in 2023 would replace the current WEP approach with a proportional formula for certain individuals who would become eligible for Social Security benefits in 2025 or later. Both measures are before the House Ways and Means Committee.
Public Servants Protection and Fairness Act of 2023. Rep. Richard E. Neal (D-MA) introduced H.R. 4260 on June 21, 2023. The bill would provide worker beneficiaries (but not dependents) an additional monthly payment equal to the lesser of (1) $150 or (2) the current WEP reduction amount. The additional monthly payment under this bill would be excluded in determining eligibility and the benefit amount under the Supplemental Security Income program.
The CRS says that the OCACT estimates that H.R. 4260 would cost about $30.1 billion from 2023 through 2032, net of additional revenue from income taxation, including $1.5 billion for the new proportional formula and $28.7 billion for the additional monthly payments.
Equal Treatment of Public Servants Act of 2023. Rep. Jodey Arrington (R-TX) introduced H.R. 5342 on Sept. 5, 2023. It would provide an additional monthly payment of $100 to workers and $50 to dependents. The additional monthly payments would begin nine months after enactment of the respective bill, would increase with cost-of-living adjustments, and would be exempt from most benefit adjustments under Social Security.
The OCACT estimates that H.R. 5342 would cost approximately $23.9 billion from 2023 through 2032, net of additional revenue from income taxation, including $1.5 billion for the new proportional formula and $22.4 billion for the additional monthly payments.
Protection provision. Because the proportional formula could reduce Social Security benefits for some future beneficiaries with noncovered employment compared to current law, both bills include a protection provision, the CRS notes. Those provisions say that individuals would receive a benefit based on the higher of (1) the current WEP formula or (2) the proportional formula.
H.R. 4260 would apply the protection provision to all future beneficiaries. As with current law, the proportional formula would not apply to workers who do not receive a noncovered pension or who have 30 or more years of substantial covered earnings.
H.R. 5342, however, would apply the protection provision during the transitional period for new beneficiaries who become eligible for benefits during 2025 through 2067. For those who become eligible in 2068 and later, benefits would be based solely on the proportional formula.
Finding Out More
The CRS report is here.
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