The average worker will change jobs roughly every four years, giving him or her the potential for ten different jobs over a forty year career. Many of these individuals will bounce between private sector and government jobs throughout this process. As a result, it is easy for workers to potentially pay into the Social Security Administration (aka SSA) at one point in a career, and work in a SSA-exempt position (such as a state or local government) later on. In Colorado, this most commonly occurs with PERA, the state-run benefit plan for state, local and public school (including higher education) employees.
However, there may not be a great windfall for these workers that might hope to receive full Social Security benefit checks alongside their public (government) sector pension benefits. The Social Security Administration is paying attention to when workers are earning a public-sector pension (and therefore NOT paying into the SSA system). The calculation used to “correct” this dual-pension windfall is known as the Windfall Elimination Provision (WEP).
The WEP calculation is based on how long a worker had “substantial” earnings under Social Security covered (private sector) employment. The longer an individual worked in a Social Security covered environment, the smaller the WEP offset becomes. The calculation is rather complex, and interested parties can use the WEP calculator on the Social Security Administration’s website. Working 30 years of covered employment will exempt an individual from the WEP and entitle the worker to full Social Security benefits.
Workers considering all of their income sources as they evaluate retirement needs should be sure to calculate the impact of the Windfall Elimination Provision if they have worked in the public and private sectors throughout their career.