The Foreign Service Journal, May 2005

6 AFSA NEWS • MAY 2005 Retiree Issues BY BONNIE BROWN, RETIREE ACTIVITIES COORDINATOR Social Security: The Windfall Elimination Provision and Government Pension Offset Q: How are Social Security Benefits calculated? A: Social Security benefits are based on an employee’s average monthly earnings adjusted for inflation. In calculating benefits, the Social Security Administration divides an employee’s average earnings into three amounts and multi- plies each amount by a different factor. For a worker who turns 62 in 2005, for example, the SSA will multiply the first $627 of average monthly earnings by 90 percent, the next $3,152 by 32 percent and the remainder by 15 percent. Q: What is the Windfall Elimination Provision? A: TheWindfall Elimination Provision is amodification of the Social Security benefits formula. It reduces Social Security benefits for employees who did not pay Social Security taxes during all of their government work years. Generally, theWEP applies to anyone who receives an annu- ity based in whole or part on employment not covered by Social Security unless he were eligible to retire by Dec. 31, 1985, or had 30 years of Social Security-covered employment. A modified penalty applies if one has between 20 and 29 years of Social Security covered employment. Q: How does the WEP formula work? A: The first factor (the 90-percent factor) is reduced in the modified formula unless an employee has 30 or more years of “substantial” earnings, as defined by the SSA. For those who have worked less than 30 years, the factor is reduced by 5 percent a year for each year of substantial earnings less than 30 years to a floor of 40 percent for 20 or fewer years of sub- stantial earnings. The WEP formula does not apply to survivor benefits. Q: Is an annuitant who switched from an old retire- ment system (FSRDS or CSRS) to the new retire- ment system (FSPS or FERS) subject to the WEP? A: Yes, if he voluntarily switched to either the FSPS or FERS retirement system and had service prior to Jan. 1, 1984, that was not covered by Social Security. Q: What is the Government Pension Offset? A: The Government Pension Offset is an offset that reduces the Social Security benefits of a spouse or sur- vivor who also receives an annuity for work that was not cov- ered by Social Security. The GPO reduces the amount of Social Security spousal or survivor benefits by two-thirds of the amount of the annuity. It does not apply to employees who are under the new FSPS system for at least five years. Q: Are there any efforts to repeal the offsets in the 109th Congress? A: Yes, Rep. BuckMcKeon, R-Calif., introducedH.R. 147, which has 220 bipartisan cosponsors. And Senator Dianne Feinstein, D-Calif., introduced S. 619, which has eight cosponsors. Approximately 635,000 beneficiaries are subject to theWEP andmore than 335,000 beneficiaries are affected by the GPO. The repeals would cost about $60 billion over a 10-year period. ▫ Q & A Progress on PIT Buyback: Could It Be? The saga of the PIT buyback legisla- tion continues. In September 2002, the State Authorization Bill included a provision for PIT retirement buyback, and the legislation was passed. This meant that anyone who had worked in a PIT position (part-time, intermit- tent or temporary appointment) between 1989 and 1998 would be able to “buy back” the retirement cov- erage that had been denied to them since 1989 when the new federal retirement system, the Federal Employees Retirement System, or FERS, took effect. AFSA had long fought for this buy- back option for Foreign Service family members who had worked in PIT posi- tions, and was encouraged by the 2002 legislation. However, to date no one has been able to benefit from the legislation because the Office of Personnel Management did not issue the needed implementing guidelines and relevant regulations. AFSA understands that in March, OPM sent draft regulations out for comment by the agencies. This is encouraging news, and we will keep you posted. Briefs • Continued on page 7 AFSA NEWS BRIEFS Briefs • Continued from page 5