If you have a pension from employment with a federal, state, or local government, there are a couple of provisions that you need to be aware of that could impact your retirement benefits.

They're called the Government Pension Offset and the Windfall Elimination Provision. That's what we're going over in today's video.

Who does the Windfall Elimination Provision and Government Pension Offset Apply to?

So both of these provisions only apply if you have a non covered pension.

A non covered pension comes from a job where your employer didn't withhold social security taxes.

Most commonly, this is going to be pensions from public schools, police departments, fire departments, and other government employment.

If your only pension is from a job where you were paying Social Security taxes, then neither of these provisions is going to apply to you.

If you're not sure whether you're paying social security taxes, you can check on your Form W 2, Box 4.

If that form is blank or has a zero, then you're not paying social security taxes.

What is the Windfall Elimination Provision (WEP)?

So, let's start with the Windfall Elimination Provision. This is only going to apply if two things are true.

1. You have that non covered pension from a job where you weren't paying Social Security taxes.
2. You qualify for social security retirement benefits from other jobs where you were paying social security taxes. Typically, this means at least 10 years of employment from employers that are covered by social security.

If this is you, the Windfall Elimination Provision could reduce your Social Security benefits by up to half of the amount of your pension.

The exact calculation is too complicated for this video, but the Social Security Administration puts out a helpful chart that shows what the potential impact could be, so I'll put a link to that in the description.

There are a few notable exceptions where the Windfall Elimination Provision would not apply.

So if you have 30 years of what the IRS calls substantial earnings from social security covered employment, then the Windfall Elimination Provision is not going to apply to you.

Also, if you were hired by the federal government after December 31st, 1983, not going to apply.

Lastly, if your pension is solely the result of working for a railroad... Also not going to apply.

What is the Government Pension Offset (GPO)?

All right, let's move on to the Government Pension Offset or GPO.

While the Windfall Elimination Provision affects Social Security benefits off of your earnings record, the Government Pension Offset impacts spousal Social Security benefits which are earned off of your spouse's earnings record.

So if you have a non covered pension, and you otherwise could have qualified for spousal benefits based on your spouse's earnings record, then the GPO could impact those spousal benefits.

The spousal benefit for social security is up to 50 percent of your spouse's benefit.

If your spouse had a $3,000 per month benefit from social security, your spousal benefit would be up to $1,500 per month.

However, if you have a non covered pension, your spousal benefit is going to be reduced by two-thirds of the amount of your pension.

So let's say your pension was $2,000 per month. Two-thirds of that is $1,333 per month. So subtract that from your $1,500 spousal social security benefit and that spousal benefit gets reduced down to $167 per month.

So this can have a big impact on your retirement plan.

Incorporating These Provisions Into Your Financial Plan

If either of these provisions apply to you, it's important that you don't rely on your statement from the Social Security Administration's website because it's not factoring in the impact of these provisions.

If you want to get more details about how the Windfall Elimination Provision or the Government Pension Offset could impact your specific retirement, then I'd encourage you to reach out to us for a free consultation.