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Transcript of Social Security Administration An Overview of the Impact of NOT Paying Social Security Taxes as a...
Social Security Administration
An Overview of the Impact of NOT Paying Social Security Taxes
as a State Employee
Windfall Elimination Provision
Government Pension Offset
Today’s Objectives
Fifteen minutes from now you Fifteen minutes from now you will know:will know:
How my retirement benefits are calculated
If I am eligible for Spouse or Survivor retirement benefits
The impact of potential offsets on retirement benefits
And Those Pesky Offsets
■ One Reduces your own benefit
■ The other reduces any benefits you might be eligible for on your spouse’s Social Security record
■ You will learn why they were enacted
Windfall Elimination ProvisionSocial Security is not a pension plan
but a Social Insurance plan. As such, it has “social” goals, among which is to:
Raise the standard of living for lower income workers
Non Covered Earners Look Poor
The addition of all those “zero” years give non covered earners an artificially low average wage.
But you’re not “low wage earners”
A non covered employee is not A non covered employee is not the kind of low-income worker the kind of low-income worker the weighted benefit formula is the weighted benefit formula is trying to compensate.trying to compensate.
The Other Offset
It’s called “Government Pension Offset” (GPO)
GPO takes two-thirds of your
non covered pension and deducts that from any spouse/survivor benefit you might be due
Social Security: Social Security: YesterdayYesterday
One spouse workedOne spouse worked The other spouse did not work The other spouse did not work
outside the homeoutside the home One received a Social Security One received a Social Security
checkcheck The other received a The other received a
“dependent” spouse benefit“dependent” spouse benefit
Both spouses work and pay into Both spouses work and pay into Social SecuritySocial Security
Since both work neither is Since both work neither is “dependent”“dependent”
Social Security: TodaySocial Security: Today
Social Security Statement
It is inaccurate if It is inaccurate if you are a non you are a non
covered covered employeeemployee
Two Important Points
If you have 40 credits you will be eligible for a monthly retirement benefit
If you have paid Social Security taxes for fewer than 30 years, your benefit will be reduced by WEP or GPO
How is this Done
■ A weighted benefit formula
■ Lower income workers receive a higher rate of return
How Social Security Determines Your Benefit
Social Security benefits are based on earnings
Step 1 Your wages are adjusted for changes in wage levels
Step 2 Find the monthly average of your 35 highest earnings years
Step 3 Result is “average indexed monthly earnings”
If your average monthly earnings are = $5,200Then your monthly benefit would be = $2,001
Average Monthly Earnings $5,200
90% of First $761 = $685
32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)
15% of Earnings over $4,586 $614 = $92($5,200-$4,586 = $614)
$5,200 $2,001
If your average monthly earnings are = $5,200Then your monthly benefit would be = $2,001
Average Monthly Earnings $5,200
90% of First $761 = $685
32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)
15% of Earnings over $4,586 $614 = $92($5,200-$4,586 = $614)
$5,200 $2,001
Retirement Benefit Computation Example
Retirement Benefit Computation Example
Modified Formula
The Windfall Elimination Provision says we must refigure your benefit giving you the 40% (average) return rate instead of the 90% (low income) return rate.
Retirement Benefit Computation Example
with WEPIf your average monthly earnings are = $5,200Then your monthly benefit would be = $1,620
Average Monthly Earnings $5,200
40% of First 761 = $304
32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)
15% of Earnings over $4,586 614 = $92($5,200-$4,586 = $614) $5,200 $1,620
If your average monthly earnings are = $5,200Then your monthly benefit would be = $1,620
Average Monthly Earnings $5,200
40% of First 761 = $304
32% of Earnings over $761 through $4,586 $3,825 = $1,224($4,586-$761 = $3,825)
15% of Earnings over $4,586 614 = $92($5,200-$4,586 = $614) $5,200 $1,620
Impact of the Windfall Elimination Provision
WEP Recognizes the more years a non covered wage earner has paid Social Security taxes, the closer you should be to the standard benefit formula
√ 30 Years = standard formula with 90% as return rate
√ 21-30 years = modified formula with return rate between 40-85%
√ 20 years or less = full WEP formula with 40%
WEP Effective Date
First Month Entitled to Both Social Security and Pension Based on Non Covered Employment
Alternate Retirement Program
Hired after 07/13/1990 = Covered under Social Security = NO WEP
Hired before 07/13/1990—employees decided to be covered or not be covered under Social Security = All or Partial WEP
ARP Account Value
Value of Account:
■ Effective date of termination (regardless of when funds are actually disbursed)
■ Based on mandatory contributions only (do not include voluntary contributions)
Monthly Pension Amount
Life expectancy tables determine a monthly pension amount
For covered and non covered employees = pension is prorated
Account Value Verification
TIAA-CREF: 1-800-842-2776
ING: 1-800- 584-6001
ING took over State of Connecticut contract January 1, 2006
Key to Understanding Key to Understanding GPOGPO
Dependent BenefitsDependent Benefits Consider history of spouse’s Consider history of spouse’s
benefits under Social Securitybenefits under Social Security
Unless One was a Non Unless One was a Non Covered Employee…Before Covered Employee…Before
GPOGPO
If one spouse was a non covered If one spouse was a non covered employee, they received their employee, they received their own non covered pension AND a own non covered pension AND a “dependent” Social Security “dependent” Social Security benefit.benefit.
Dependent Retirement Benefit Computation Example with GPOThe reduction is two-thirds (2/3) of the non
covered government pension.
Example: Employee is getting a $600 state pension. This employee is eligible for a $500 spousal benefit from Social Security
2/3 times $600 is $400
$500 minus $400 is $100
This employee would get a $100 Social Security benefit.
For More Information
■ www.socialsecurity.gov
■ 1-800-772-1213
■ Local Social Security Office