TN 10 (03-04)

GN 01701.301 Foreign Pensions Based on Noncovered Employment – Special Rules for Totalization Benefits Payable for Months Prior to January 1995

A. Introduction

In general, for purposes of the Windfall Elimination Provision (WEP), a foreign pension based on employment not covered by U.S. Social Security is treated the same as any other pension based on noncovered employment. For Totalization benefits payable for months prior to January 1995, special rules are used to determine whether a foreign pension is considered a pension based on noncovered employment. Since the WEP does not apply in computing Totalization benefits for months after December 1994, these special rules are relevant only if Totalization benefits are payable for months before January 1995.

B. Policy

When a worker is entitled to a U.S. Totalization benefit payable for months before January 1995 and a pension from a Totalization agreement country (i.e., a pension based on work covered by the social security system of that country), the foreign pension is considered to be based on U.S. covered work. As a result, entitlement to a pension (government sponsored or private) from an agreement country will not cause the WEP to apply in the computation of a U.S. Totalization benefit payable for months before January 1995.

This policy applies regardless of which agreement country is paying the pension (i.e., it does not have to be the country whose coverage was used to establish the number holder’s (NH’s) entitlement to the U.S. Totalization benefit).

If the NH is insured based on U.S. coverage alone, a pension from an agreement country is considered a pension based on noncovered work and may trigger the WEP for benefits payable for months prior to January 1995. For benefits payable after December 1994, a foreign pension may trigger the WEP only if the NH is insured based on U.S. coverage alone and the foreign pension is not based on the Totalization agreement with the United States. (See GN 01701.310 for a discussion of this provision.)

C. Examples

1. Combined U.S.-German coverage

Situation: The NH is entitled to a U.S. Totalization retirement benefit for months prior to January 1995 based on combined U.S. and German coverage. In addition, he is entitled to a social security benefit from Germany and a private pension from a former German employer.

Decision: The WEP does not apply. Since the NH is entitled to a Totalization benefit and Germany is an agreement country, both German pensions are considered to be based on covered employment.

2. Combined U.S.-German and Swiss coverage

Situation: Same as GN 01701.301C.1 Example except that the NH is also entitled to a pension from Switzerland.

Decision: The WEP does not apply. Switzerland is an agreement country and the Swiss pension is, therefore, considered to be based on covered employment just as the German pension.

3. Combined U.S.-German and Chilean coverage

Situation: Same as GN 01701.301C.1 Example except that the NH is also entitle to a pension from Chile.

Decision: The WEP applies in computing Totalization benefits for all months prior to January 1995. The Totalization agreement with Chile was not effective until December 1, 2001. Therefore, for Totalization benefits payable prior to January 1995, the pension from Chile is considered a pension based on noncovered employment and will trigger the WEP. Beginning January 1995, the WEP would no longer apply to the Totalization benefit (see GN 01701.300).

4. Insured Based on U.S. coverage alone

Situation: Same as GN 01701.301C.1 Example except that the NH is insured based on U.S. coverage alone and, therefore entitled to a regular U.S. benefit rather than a Totalization benefit.

Decision: The WEP applies in computing benefits payable for any months prior to January 1995. Since the NH is entitled to a regular U.S. benefit, a pension from an agreement country (in this case Germany) is considered a pension based on noncovered employment. However, beginning January 1995, the WEP would no longer apply if the foreign pension was based on a Totalization agreement with the United States (see GN 01701.310B).

D. Refe