One Blown-Away Windfall
By Mike Causey
Washington Post Staff Writer
Thursday, June 13, 1996; Page B02
Many federal workers believe that 40 quarters of paying into Social Security entitles them to a big benefit in addition to their federal annuity.
Unfortunately for them, 10 years in a Social Security-covered job doesn't constitute a career, any more than 10 years with Uncle Sam means a big pension. Reaching the 40-quarters mark means a Social Security check but probably not the amount many federal employees are expecting.
People who work for Uncle Sam under the Civil Service Retirement System, nearly everyone hired before 1984, do not pay the Social Security OASDI tax (for old age, survivors and disability insurance). But they may have paid into the Social Security system for other work, usually for an employer other than the federal government, and they may be expecting a substantial Social Security retirement benefit.
That benefit may be reduced, however, by as much as $200 a month, as a result of a 1983 law that catches many people by surprise when they start retirement planning.
The so-called windfall elimination penalty was enacted to prevent federal retirees from taking advantage of a low-income tilt in Social Security. That tilt is designed to help low-income and short-career people by replacing more of their pre-retirement income (as a Social Security benefit) than it does for higher-income people with long careers.
In that respect, Social Security is different from the Civil Service Retirement System. CSRS rewards people for long service and for getting promotions and pay raises. The longer they work and pay into the retirement system, the more they get in annuity. By contrast, high-income, long-service people under Social Security have a smaller percentage of their pre-retirement income replaced than many low-income, short-service workers.
To close a loophole that allowed longtime, high-income feds to benefit from the Social Security tilt, based on short, low-income work under Social Security, Congress passed the windfall law. It doesn't eliminate the benefit. But for people retiring this year with less than 30 years of Social Security coverage, it can reduce that benefit as much as $200 a month.
Workers under CSRS (who didn't pay the Social Security tax while working for Uncle Sam) will have their Social Security benefit reduced unless they have 30 years of "substantial" Social Security coverage. The situation is outlined in the Social Security pamphlet: "A Pension From Work Not Covered by Social Security."
Here's a thumbnail sketch of the windfall law from retirement handbooks put out by Government Retirement Benefits, an Alexandria-based benefit firm:
"For employees who receive a federal pension and also are eligible for Social Security benefits, a different formula may be used to compute their Social Security benefits. This formula will result in a lower benefit. The `windfall' penalty affects workers who reach age 62 (or become disabled after 1985) and first become eligible after 1985 for a federal pension.
"The windfall penalty does not apply if:
The employee was eligible to retire from federal service before Jan. 1, 1986 (even if [the employee] did not retire).
The employee was first employed by the government after Dec. 31, 1986.
The employee has 30 or more years of substantial earnings under Social Security."
Government Retirement Benefits recommends that employees contact their local Social Security office to determine the effect of the windfall penalty on their Social Security benefits, because the personal earning statment most people get does not show the effects of the windfall penalty.
© 1996 The Washington Post Co.
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