Exemptions from the WEP
By Richard Cohee
In accordance with the provisions of Section 215 of the Social Security Act and Section 404.213 of the regulations promulgated thereunder, the Social Security Administration may allow a City retiree who is entitled to the receipt of Social Security benefits to receive such benefits without suffering the full impact of the WEP.
One of these authorizations relate to the period of time that the City retiree may have recorded “substantial earnings” from other non-City employment where Social Security taxes were paid. If the City retiree has 30 years of such “substantial earnings”, a full exemption from the WEP will be permitted. In addition, the WEP penalty is reduced to the extent that the City retiree has between 21 to 29 years of “substantial earnings” while paying into Social Security. In such cases, the 40% factor implementing the impact of the WEP (versus the normal 90% factor used where the WEP is not applicable) is increased by 5% for each year of “substantial earnings” recorded beyond year 20. For example, a City retiree with 23 years of “substantial earnings” would have his Social Security benefits calculated using a 55% factor (thus avoiding one-third of the financial impact from the WEP).
There is also an exception from the application of the WEP in the case of a public employee, who before 1986, became eligible to receive a government pension from employment not covered by Social Security. Recent interpretations from Social Security have clarified the intent of this exemption to apply only where the City retiree was eligible to “immediately” receive payment from the pension plan at a date prior to 1986. Earlier interpretations had permitted the WEP exemption upon the attainment of vested pension status at a date prior to 1986. The recent clarification from Social Security firmly established the point that the mere attainment of vested status is not sufficient. The right to the immediate receipt of City pension distributions at a date prior to 1986 is the standard to be used for purposes of WEP exemption. Please note that you need not have retired from the City prior to 1986, only that you could have retired from the City prior to 1986 and at that point in time would have been entitled to the “immediate” receipt of normal pension benefits.
In the event that you earned the right to an “immediate” pension prior to 1986, you will likely be required by the local Social Security office to obtain a letter from your City pension plan administrator certifying this fact.