1. Angie Dowdy Social Security Program Director
LAPERS Seminar 2019
How a Public Pension Can Affect Social Security
Angie Dowdy
Social Security Program Director
John M. Schroder
State Treasurer and State Social Security Administrator

2. I will discuss… WEP - Windfall Elimination Provision
History of Section 218
Mandatory Medicare
Basics on how Social Security benefits are calculated
WEP - Windfall Elimination Provision
GPO - Government Pension Offset

3. History of Section 218…
1935 Original Social Security Act provided NO coverage for state and local government
1951 Section 218 allowed voluntary coverage of Non-retirement system positions
1952 Louisiana entered into a Section 218
Agreement with SSA
1955 Coverage of retirement system positions by majority vote referendum
2004 Coverage of retirement system positions by divided vote referendum
When Social Security was implemented in 1935, state and local government employees were not allowed to contribute. There were concerns as to the legality of the federal government imposing taxes on state government. This left many state and local government employees, who were not members of a retirement system, without retirement, disability or survivor coverage.
So in 1951, states were allowed to enter into VOLUNTARY Section 218 Agreements.
Louisiana entered into it’s Agreement effective December 10, This allowed Social Security coverage for certain state and local government positions that were not in a retirement system or plan. Social Security or Medicare-Only coverage is accomplished by modifying that original agreement.
In 1955 states were allowed to cover positions in a retirement system by holding a Majority Vote Referendum (The only government agencies in Louisiana to cover their employees with both Social Security and Retirement were in New Orleans – The City, Housing Authority and Sewerage & Water Board)
And in 2004, Louisiana became a named state, allowing coverage of retirement system positions by holding a Divided Vote Referendum.

4. History of Section 218…
Each state has entered into a “Section 218 Agreement” with the Social Security Administration
(Including Puerto Rico and the Virgin Islands)
State enabling legislation determined how each state wanted to apply the Social Security Act
(within Federal guidelines)
Each state, including Puerto Rico and the Virgin Islands has entered into a section 218 Agreement. Each states enabling legislation determines its degree of coverage under Section 218 of the Act.
In 2004 Louisiana became a named state, our statutes had to be amended to enable us to conduct Divided Vote referenda

5. (Medicare tax withholding)
Mandatory Medicare…
1986
Congress mandated Medicare coverage of all employees hired, re-hired or elected after March 31, 1986
(Medicare tax withholding)
Medicare is mandatory for all new hires, rehires – with a break in service and elected officials at 1.45% for both employee and employer, as of April 1, 1986.
So, if a retiree returns to work after a break in service, they will pay the Medicare tax.

6. Medicare eligibility…
Generally individuals are eligible for premium free Medicare “Part A” if they, their spouse, divorced spouse or deceased spouse worked for at least 10 years (40 or more credits) in Medicare-Only or Social Security covered employment and are age 65.
To qualify for “Premium Free” Part A of Medicare at age 65 on your own record, you would need 40 or more credits. You can earn a maximum of 4 credits per year so this would require 10 years of work.
You can also qualify on the record of a spouse - living, deceased or divorced – if all criteria are met, such as years of marriage, etc.

7. (Four credits is the maximum per year)
Medicare Premiums…
Individuals who do not qualify for premium free “PART A” can purchase Medicare.
2019 MONTHLY PREMIUMS
(These figures apply to "timely" enrollments in 2019.)
Individual Individual Individual
has at least has HAS less than
40 credits credits 30 credits
Part A $ $ $
Part B
TOTALS $ $ $   
EXCEPTION:
Those with earnings exceeding $85,000 (individual) and $170,000 (married couples)
may pay a higher premium than $ per month.
SOCIAL SECURITY WORK CREDITS/QUARTERS
Earnings required (currently credits are defined as follows):
One credit=$1, Four credits = $5,440 wages in a calendar year
(Four credits is the maximum per year)
And this is why it’s so important to qualify for “Premium Free” Part A of Medicare,
For 2019, and of course, like everything else, this can (and normally does) go up each year!
Someone with credits will pay $ FOR Medicare Parts A and B.
Someone with less than 30 credits will pay $ for Parts A & B of Medicare.
As noted, everyone pays a premium for Part B of Medicare
For 2019, One credit equates to $1,360 so 4 credits would be $5,440. To earn 4 credits, the max earnable per year, you would need to make $5,440 in Medicare covered wages. The $5,440 can be earned at any point in the year to get the 4 credits.
If you currently contribute to Social Security, you are also contributing to Medicare.

8. Standard Calculation of benefit…
Social Security benefits are based on the worker’s average monthly earnings adjusted for inflation.
For a worker who turns 62 in 2019, the first $926 of average monthly earnings is multiplied by 90 percent; earnings between $926 and $5,583 is multiplied by 32 percent; and the remainder by 15 percent.
The sum of the three amounts equals the total monthly payment amount.
This is a very basic example of formula used to calculate a retirement benefit from Social Security.
1st - you must determine the Primary Insurance Amount or “PIA”. This is done by averaging the workers highest 35 years of earnings, zero’s are in place for those years without Social Security reported wages, and adjustments are made for inflation.
For a worker who turns 62 in 2019, the first $926 of the PIA is multiplied by 90 percent; earnings between $926 and the difference between $5,583 and $926 (or $4,657) by 32 percent; and the remainder by 15 percent.
The sum of the each of these three factors equals the total monthly benefits amount.

9. Example: Standard Calculation…
Example, for a worker who turns 62 in 2019 and has an PIA (Primary Insurance Amount) of $6,400
the first $926 X 90% = $
the next $4,657 X 32% = $ 1,490.24
the remainder, $817 X 15%= $
The sum of the three factors equals the
Total monthly benefit amount $2,446.19
Now, I’ll attempt to make the last slide make sense and give you something more “visual”.
As discussed in the previous slide, lets figure this workers Social Security Retirement Benefit using an AIME of $5,
The first $926 of the $6,400 would be multiplied by 90%....equaling $833.4
The next $4,657 (difference between $926 and $5,583) of the $6,400 would be multiplied by 32%....equaling $1,490.24; and
The remainder, in this case, $817 would be multiplied by 15%....equaling $122.55
The sum of these three factors…equals $2,446.19, this would be the workers monthly Social Security retirement benefit.
I’d like you to remember that Social Security benefits are geared toward the low wage earner, keep in mind the reason Social Security was implemented….a small savings toward retirement, disability and surviving dependent coverage.

10. WEP … Windfall Elimination Provision:
If you didn't pay Social Security taxes on your government earnings and you are eligible for Social Security benefits, the formula used to figure your benefit
amount may be modified, giving you a
reduced Social Security benefit.
Now: Let me explain how a public pension or defined contribution plan account can impact Social Security benefits….
Public employees, who receive a retirement benefit from work not covered by Social Security or contribute to a Defined Contribution plan in lieu of Social Security, and who are eligible to receive a Social Security benefit, based on their own earnings record, may be subject to the Windfall Elimination Provision (WEP).
Since Social Security benefits are geared toward the low wage earner, those who receive a benefit from non-Social Security covered wages may have their Social Security benefit reduced.

11. The maximum WEP reduction for 2019 is: $463.00
Calculation of WEP reduction…
The 90 percent factor is reduced in the modified formula and phased in for workers who reached age 62 or became disabled between 1986 and 1989.
For those who reach 62 or became disabled in 1990 or later, the 90 percent factor can be reduced to 40 percent.
The maximum WEP reduction for 2019 is: $463.00
Because this worker is eligible to receive a pension from wages not covered by Social Security, they are not technically a “Low Wage Earner” for Social Security benefits calculation purposes.
Therefore, the first factor of the calculation may be reduced from 90% to 40%.
The maximum WEP reduction for 2019 is $ This figure can be more if you retire and begin drawing a SS benefit prior to retiring from the state.
WEP is a reduction and cannot offset (in whole) a Social Security benefit based on your own earnings record.

12. Example of WEP reduction…
Example, for a worker who turns 62 in 2019 and has an AIME (Average Indexed Monthly Earning) of $6,400
the first $926 X 40% = $
the next $4,657 X 32% = $ 1,490.24
and the remainder X 15% = $
The sum of the three factors equals the Total monthly benefit amount $1,983.19
A reduction of $463.00
Let’s say, the same worker used in the standard calculation example is eligible to receive a pension from wages not covered for Social Security….
Using the same PIA of $6,
The first $926 of the $6,400 would now be multiplied by 40%....equaling $370.40
The next two factors would remain the same; $4,657 multiplied by 32%; and $817 multiplied by 15%
The sum of these three factors…now equals $1,983.19, a reduction of the WEP maximum of $463.00

13. Exception to WEP reduction…
The 90 percent factor is not reduced if you have 30 or more years of “substantial” earnings in a job where you paid Social Security taxes.
If you have 21 to 29 years of substantial earnings, the 90 percent factor is reduced to between 45 and 85 percent.
There are exceptions to the majority of rules and WEP is no different,
WEP may not be applied if you have 30 years of substantial earning in Social Security covered work.
Or the reduction of the 90 percent factor could be between 45 and 85 percent, as opposed to the 40 percent, if you have 21 to 29 years of substantial earning in Social Security covered work.
Another exception could be those employees meeting the criteria of Louisiana ACT 154-which basically states, if an employee had 10 years of service by September 1, 1985 – they were considered eligible to retire (for WEP purposes) and would therefore not have WEP applied to a Social Security retirement benefit, based on their own earnings record.
Act 154 applied to WEP only!!
If you were eligible to retire under Act 154 and you participated in DROP, SSA SHOULD NOT apply the WEP. If this happens call me at I will be glad to work with you and provide you with assistance!

14. GPO…
Government Pension Offset:
If you receive a pension from a federal, state or local government based on work where you did not pay Social Security taxes, your Social Security spouse’s, widow’s or widower’s benefits may be reduced.
State employees, who receive a retirement benefit from work not covered by Social Security, and who are eligible to receive a Social Security benefit, based on the earnings record of a spouse, may be subject to the Government Pension Offset (GPO).
Note: while WEP is a reduction only, GPO can offset your spousal benefit entirely.

15. Standard Calculation of benefit…
Example: a woman worked and earned her own $900 monthly Social Security retirement benefit, but she is also due an $800 spouse’s benefit based on her husband’s Social Security earnings record, Social Security would not pay that spouse’s benefit because her own Social Security benefit offset it.
When both spouses receive a Social Security benefit based on their own earnings, the offset is dollar for dollar.
Again, Social Security benefits are geared toward the low wage earner, so……
When both spouses work and draw Social Security retirement benefits on their own records, the offset is dollar for dollar.
For example:
A wife’s Social Security retirement benefit (from earnings on her own record) is $900
She is eligible to receive a spousal benefit of $800
She would not receive the spousal benefit because her Social Security retirement benefit of $900 is more than the spousal benefit of $800 and would offset it entirely. DOLLAR FOR DOLLAR

16. Calculation of GPO offset…
Your Social Security benefits will be reduced by two-thirds of your government pension.
Example: if you get a monthly civil service pension of $1,500, two-thirds of that, or $1,000, must be deducted from your Social Security benefits.
If you are eligible for an $1,200 spouse’s, widow’s or widower’s benefit from Social Security, you would receive $200 per month from Social Security.
($1,200 – $1,000 = $200)
For those that earn a retirement benefit from wages not covered by Social Security, such as state and local employees, the offset is not dollar for dollar.
A spousal Social Security benefit would only be reduced by two-thirds of their government pension. When contributions are made to a Defined Contribution Plan in lieu of Social Security, SSA will use the account balance to figure a “monthly benefit” then reduce your spousal benefit by two-thirds of that amount.
For example: SSA takes the DC plan balance and determines a $1,500 “monthly benefit”, the retiree would have their Social Security spousal benefit reduced by two-thirds of their “monthly benefit” amount, equaling $1,000
So if you were eligible to receive a $1,200 spousal benefit from Social Security, that would be reduced by the $1,000, leaving them eligible to receive $200.
While this seems unfair to most state employees who are affected by GPO, if both retirement benefits were earned by Social Security covered wages, this retiree would not be eligible for any spousal benefit because of the dollar for dollar offset.

17. Exceptions to GPO offset…
Generally, your Social Security benefits as a spouse, widow or widower will not be reduced if you:
Are receiving a government pension that is not based on your earnings
Are a state or local employee whose government pension is based on a job where you were paying Social Security taxes
GPO may not be applied:
If the public pension you receive is not from wages you earned
Or if you worked in a state or local government position where you
contributed to Social Security.
Again…..ACT 154 does not apply to GPO

18. The Equal Treatment of Public Servants Act of 2018
H.R. 6933…
H.R. 6933
The Equal Treatment of Public Servants Act of 2018
(115th Congress, 2d Session)
H.R by Rep. Kevin Brady (TX), Introduced to the House on 9/27/2018 and referred to House Committee on Ways and Means with 34 cosponsors. The companion bill S.3526 by Sen. Ted Cruz (TX), read twice and referred to Committee on Finance.
The repeal of WEP and replacement of it with a new formula referred to in the legislation as the “Public Servant Fairness Formula” (PSF) for individuals becoming eligible for Old Age-Survivor-Disability Insurance (OASDI) benefits in 2025 or later. There is also a proposed rebate payment starting in 2020 for individuals affected by the current WEP.
This legislation follows years of similar legislation…H.R. 711, 1205, 973, 2013,1795, etc

19. Resources… Social Security Administration Internal Revenue Service
(800)
7am-7pm Eastern Standard Time
Baton Rouge Office – Bankers Ave (866)
Baton Rouge Office – Harding Blvd (888)
Internal Revenue Service
IRS Publication 963
Remember that SSA handles lots of things ONLINE! You can actually apply for retirement AND/OR MEDICARE ONLY. There is a new ONLINE MEDICARE APPLICATION that can be filled out at home or a public library. You do not have to go to SSA!
List SSA Fact Sheet Handouts attached:
How State And Local Government Employees Are Covered By Social Security and Medicare
When to Start Receiving Retirement Benefits
Your Retirement Benefit: How It’s Figured
Windfall Elimination Provision (WEP)
Government Pension Offset (GPO)
Your Retirement Checklist
Retire Online
Apply Online for Medicare – Even if You Are Not Ready to Retire
How to Apply Online for Medicare Only

20. Social Security Program Director
Resources…
Angie Dowdy
Social Security Program Director
(225)
Are there any questions?