TN 32 (04-03)
RS 00605.370 WEP Guarantee
A. Policy
The WEP guarantee limits the reduction in the Social Security benefit based on the WEP to no more than one-half of that part of the pension attributable to post-1956 non-covered earnings to which the individual is entitled in the initial month of concurrent entitlement. If the pension is based on both covered and non-covered service, the attributable amount is calculated by prorating the pension to the number of non-covered service months. The reduction under the WEP guarantee is compared to the reduction using the modified formula. The smaller reduction applies.
B. Procedure
1. Computing the WEP Guarantee
When determining the pension for the WEP guarantee:
Consider only the pension or pensions to which the worker is entitled for the first month of concurrent entitlement to the pension and the Social Security benefit.
NOTE: When WEP applies to a RIB PIA and the NH subsequently becomes entitled to a DIB PIA, compute the WEP guarantee for the DIB using the pension amount payable in the first month of DIB entitlement.
Consider if the pension is based in part on covered employment.
Determine if the beneficiary is entitled to more than one non-covered pension.
Apply the guarantee based on one-half of the total amount of the pension(s) attributable to post-1956 non-covered work.
2. Prorating the Pension
When part of the pension is based on covered employment (e.g., FERS service) prorate the pension using the following formula. The amount of pension based on non-covered employment equals the pension amount times the months of non-covered work after 1956 divided by the total months of work used to compute the pension.
NOTE: When prorating the pension, months of non-covered employment after 1956 will be compared with total months of employment. A partial month of non-covered employment is considered a non-covered work month. A partial month of covered employment only is considered a covered work month. A month that contains both covered and non-covered employment is considered a covered work month.
3. Determining if the Guarantee Applies
To determine if the guarantee applies:
Compute the amount of the regular raw PIA at age 62 or DIB onset.
NOTE: The raw PIA is the PIA at age 62 without the COLAs and without applying the modified formula.
Subtract one-half of the applicable monthly pension amount payable in the first month of concurrent entitlement from the raw PIA.
Increase the resulting PIA by applicable COLAs up to the month of concurrent entitlement.
NOTE: This is the WEP Guarantee PIA.
Select the PIA in RS 00605.370B.3.c. if the PIA is higher than the PIA based on the modified formula method.
If the guarantee applies, base the Family Maximum on the raw PIA less one-half the pension amount. Add applicable COLAs.
C. Examples
1. Guarantee Applies
NH age 62 - 1/98
First month of concurrent entitlement - 1/99
AIME - $445
Raw PIA 1/98 - $400.50
Formula WEP PIA 1/99 - $180.30 (Includes 12/98 COLA)
Pension amount 1/99 - $100 (all work is non-covered and after 1956)
Step | Action |
---|
1 | Subtract one-half the pension amount in the first month of concurrent entitlement from the raw PIA: |
2 | Add the 12/98 COLA (1.3 percent): |
3 | The 1/99 PIA cannot be lower than $355.00. Since the formula WEP PIA is $180.30, the WEP guarantee PIA applies. The 1/99 FMAX is based on the raw guarantee PIA ($350), the 1998 bend-points and the 12/98 COLA. The 1/99 FMAX is $531.80. |
2. Guarantee Does Not Apply - Prorating the Pension Amount
John files a claim for Social Security retirement benefits in 1/98, the month he attains age 62. John alleges receipt of a pension of $600 based on 35 years of employment from 1/63 through 12/97. Only 31 years were non-covered. The first bend-point is 455.
The amount of the pension based on post-1956 non-covered employment equals the months of post-1956 non-covered employment (372) times the total pension (600) divided by the total months of work.
Thus 372 X $600 = $531.42
420
Drop any fraction after the second decimal place. The pension attributable to post-1956 non-covered employment is $531.42. One-half of this amount is $265.71 (round to the lower dime).
Determine the proper percentage of the first bend-point to which John is entitled. Assume John has less than 21 years of coverage.
Determine the amount of the reduction on the first bend-point under WEP (40 percent) and under prior law (90 percent).
The first bend-point is $455.
$455 x.9 = $409.50
$455 x.4 = $182.00
Thus, the maximum reduction in John's Social Security benefit is $409.50 - $182 or $227.50.
Since one-half of the attributable pension ($265.70) is greater than $227.50, the guarantee does not apply.
3. Guarantee Applies
Assume the same fact, as in RS 00605.370C.2., only John's pension amount is $200. Thus the amount of the pension based on post-1956 covered employment equals:
The amount of the pension based on post-1956 non-covered employment equals the months of post-1956 non-covered employment (372) times the total pension (200) divided by the total months of work.
Thus 372 X $200 = $177.14
420
Drop any fraction after the second decimal place. The pension attributable to post-1956 non-covered employment is $177.14. One-half of this amount is $88.50 (round to lower dime).
Determine the proper percentage of the first bend-point to which John is entitled. Assume John has less than 21 years of coverage.
Determine the amount of the reduction on the first bend-point under WEP (40 percent) and under prior law (90 percent).
The first bend-point is $455.
$455 x.9 = $409.50
$455 x.4 = $182.00
Thus, the maximum reduction in John's Social Security benefit is $409.50 - $182 or $227.50.
Since one-half of the attributable pension ($88.50) is less than $227.50, the guarantee does apply.