How a public pension can hurt in retirement: SS rule cuts benefits for government workers with second jobs
"I lose thousands every year," said Gary Monto, who served as a cop for 22 years
By Anna Staver
The Columbus Dispatch
COLUMBUS, Ohio — Gary Monto fell in love with martial arts long before he decided to become a Toledo police officer.
So, instead of picking one over the other, Monto had two careers. He served 22 years in law enforcement and ran the American Academy of Martial Arts.
He never regretted joining the police force. What disappoints him now is how the federal government penalized him for working in both the public and private sectors. A 1983 federal law called the Windfall Elimination Protection (WEP) cut his Social Security benefits by more than 60%.
"I lose thousands every year," Monto said. "There's nothing I can do to stop it."
He's not the only one.
More than 150,000 Ohioans get hit by the provision every year. Those who oppose it say the federal government is keeping money they earned, delaying their retirements and making life harder. WEP supporters, however, claim it stops public employees – whose incomes appear artificially low to Social Security – from reaping unfair benefits from a system designed to help the poor.
How the WEP works
Social Security is not a pension benefit or a 401K retirement account.
"It’s supposed to be progressive and ensure elderly people don’t go into poverty when they retire," said Chad Aldeman, director of the Edunomics Lab at Georgetown University. "The less you earn; the more you get back."
The formula currently pays people 90% of their monthly earnings on the first $960. It drops down to 32% until a person earns more than $5,785 per month. Then, it drops to 15%.
State and local governments, however, don't have to participate. Ohio opted out, which means it can contribute to Social Security or provide an equal, alternative pension benefit.
About 25% of public employees (5 million people) nationwide aren't in the system, according to the most recent numbers from Social Security.
That's a problem for the ones with a "split" employment history.
Take Sue Cramer. She was a gym teacher in Defiance during the school year, and a waitress, bookkeeper and retail employee during the summer. But Social Security only saw the income she earned outside Tinora High School.
Basically, it looked like Cramer earned less money over her career than she actually did. To fix that, the government created a formula that cut her social security. The current penalty can be as much as $463 per month.
The first problem Cramer had was a lack of notification.
Social Security's annual statements don't account for the WEP. Cramer learned about it seven years into her teaching career, but others discover an unwelcome shock upon retirement.
The second problem was its one size fits most approach.
Once a person earns about $950 a month from their pension, they can be hit by the full WEP regardless of their total retirement income. A study published in the Journal of Pension Economics and Finance in 2013 found that the WEP reduced "benefits disproportionately for households with lower lifetime covered earnings."
But Aldeman was quick to point out the WEP's limits. The deduction can't total more than half your public pension. If you earn $700 a month from a pension, your Social Security cut can't be greater than $350.
"The people who face a WEP penalty are not the poorest of the poor," Aldeman said. "They are public employees who have substantial pensions."
Lots of support, little action
Bills to repeal the WEP have had hundreds of co-sponsors over the years. The Social Security Fairness Act of 2019 had 264 of them – more than the number of votes needed to pass a bill in the U.S. House of Representatives.
Democratic Sen. Sherrod Brown has repeatedly introduced a bill with two of his Republican colleagues to repeal the WEP. Yet none of them have ever had a single committee hearing.
"We’ve had promises for 35 years that it’s going to be taken care of," Monto said. "We keep trying, but we don’t hold out much hope."
Aldeman thinks both the cost of repeal and the complexity of reform (creating new winners and losers) have kept WEP bills tucked in desk drawers around Washington D.C.
"This is more speculation than anything, but my hunch is that they are supporting it for political reasons, but they don’t want to take the vote on it," Aldeman said.
For example, one reform bill called the Equal Treatment of Public Servants Act would make a few significant changes to the WEP. One of those would be to create a new penalty formula based on a person's entire income.
Low-wage workers would get more money in this scenario, but it could hurt people who spend a short time working in the public sector, according to an analysis by Chantel Boyens of the Urban Institute.
That's because the bill would eliminate the rule that limits the hit to people with smaller pensions – like a teacher who decided on a new career path after spending a decade in a public school.
"I think it’s pretty simply a fairness issue for people who have paid into both ...," U.S. Rep. Steve Stivers, R- Columbus, said "The formula that takes away their Social Security is very punitive."
Stivers prefers a full repeal, and he hopes this year's version collects 290 House sponsors; the magic number needed to force a floor vote.
"There's a path to get this done even if it doesn’t go through the committee," Stivers said.
The new White House administration might also be willing to help. President Joe Biden talked about repealing the WEP on the campaign trail, saying back in February 2020 that "these workers deserve the benefits they've earned."
And the COVID-19 pandemic has pushed lawmakers at every level of government to look at ways to get more money into people's hands. A version of WEP reform was floated as part of the first federal aid package passed by Congress last spring.
"I think momentum's been building," Aldeman said.
But whether it's enough to force to finally push a 37-year-old issue across the finish line, is anyone's guess.
(c)2021 The Columbus Dispatch (Columbus, Ohio)