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- Possible Solution to the Social Security WEP and G...
Possible Solution to the Social Security WEP and GPO - Your Thoughts ???
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Possible Solution to the Social Security WEP and GPO - Your Thoughts ???
First off, I am very sorry that many people seem surprised and shocked over the WEP or GPO if they are affected by either of these when they retire. On the other hand, I understand why this formula reduction is there and the concept seems fair.
Is the current WEP or GPO reduction formula correct for those whose benefits are being recalculated because of them - I don't know. I do know that the previous method of calculating benefits for these folks was not right - so going back to the previous method is really out of the question. So there either has to be a new formula which will still not give a full benefit or a totally new concept.
I have come up with a possible solution and wanted to run it by the folks here to see what you think?
Why not give these government / civil employees, on an individual selection basis, the option of staying within the Social Security system by allowing the person to pay their own payroll withholding SS tax on their government / civil wages - both parts, employee and employer, the same way a self-employed does it. Currently this would be 12.4% up to the (2018) taxable wage cap of $128,400 - the cap changes yearly.
We cannot ask the government entity (employer) to pay any part of this since they would still be running and contributing to the current pension plan which they have opted to sponsor instead of being within the SS program and I am sure most don't want to give that up. So it would be up to the government/civil employee to pay both (employee and employer) parts of this tax in order to build their SS benefit but yet not affect their civil servant pension benefit.
As an example a government /civil employee who works for a government entity that does NOT participate in the SS system who earns an annual salary of $ 50,000 per year would be paying a Social Security payroll tax of $ 6200 into the system but ALL those wages would also count toward the Social Security benefit when they retire, computed without a WEP formula.
As with any retirement system, this would take some thought and planning for not only ones self but any dependent or spouse that could be left as survivors.
Perhaps there maybe a way for an involved government / civil employee to go back and pay this tax according to the tax year and receive added benefits - but it would require paying these back payroll taxes which might add up to be a pretty penny depending upon the government/civil salary through the years.
Just a thought - what do you think?
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Well, now that WEP and GPO are no longer in effect, the SS Trust is going to run dry just that much sooner unless enough people go back to work to make up the new outlay. It should have been tweaked but never revoked. My wife was not eligible to receive any SS spousal or survivor benefits as long as the GPO was in place. Now she is eligible to receive over $1900/mo in spousal benefits from SS. They say WEP/GPO only affected about 3 million people. I think that number is grossly underestimated because those are the number receiving reduced SS now. There are probably several million more, like my wife, who couldn't receive benefits because the GPO eliminated any benefit, both spousal and survivor. And I believe the SS payout will be much larger than anticipated because the GPO keeps people with pensions over $36K from collecting a SS spousal benefit from spouses with a monthly benefit under $4000.
I'm actually torn between applying for her spousal and not. If we do apply, I'll use it to reduce my out of pocket taxes. It may push me up a tax bracket and 20%-27% of it will go back to the SS and Medicare Trust funds. I'm eager to see what this year's SS Trustee Report is going to say about when the Trust will run dry and how much the law change is going to cost.
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@GailL1 That is an interesting solution that is similar to the federal governments method for including military time as part of the federal retirement system. Civil service employees can get their military time added to their federal service time by doing a backpay to the federal pension system. For 4 years military, my wife had to pay over $4000 over time to add her military to her fed service time. Hers was expensive because she waited until late in her fed career to add the years and that caused the payment to have compounded interest for all the years she waited. If she'd added the years as soon as she went to work for the Fed, it would've been about $1200. But the return on investment of paying for the 4 years was an additional 8% of pension income.
For your plan to work, the worker would have to start paying the SS taxes as soon as they started non-SS taxed work or the compounded interest for coming to the party late would be astronomical, as in several hundred thousand dollars by retirement time. In my wife's case, if she paid the SS taxes at retirement to receive SS, her half alone would've cost $110,000 plus the 35 years interest to receive a SS check for $2900 starting this year. Not a real good return on investment with a compounded interest cost. If her teenage years had been admissible for SS her age 62 SS after WEP would've been about $300/mo for a grand total of about $3500 in FICA taxes paid. She would've gotten it all back in the first year. Like you said, WEP and GPO are justified, but I think in some cases they are implemented similar to doing surgery with a chainsaw instead of a scalpel.
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@roachme I thought I would provide some numbers so all readers will see the dollar value for compound interest over 35 years. To illustrate, I made some assumptions since I do not know your spouse's starting salary and ending salary after 35 years. I simply used $110,000 of estimated FICA and divided by 35 years or on average $3,143 (rounded) per year. At 3%, $3,143 will amount to $190,032. At 4%, $3,143 will amount to $231,489. These totals represent just the employee contribution. So, double the above amounts to accurately represent both employee and employer contributions or $380,064 and $462,978, respectively. I suspect that most folks will not elect to pay those amounts.
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@roachme One of my really old post (2018) - had to read it again to remember what scheme I was cooking up. OH, IF I Were only King. 🤓
It would work IF they were given this choice at the beginning of their government employment where Social Security wasn’t covered. Yes, a later decision would probably cost them a lot maybe too much for the benefit.
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@GailL1 I thought it was a novel, outside the box, idea that should be acknowledged. Unfortunately, I don't think a lot of people would buy into it because it would cost them 12.4% for a payout 40-50 years later. Like for my wife that would've been over $220K total out of her checks for SS on top of her 7% share paid out for the pension.
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@roachme Thanks for your positive replies on other threads. I agree with you that the greater majority of employees in non-covered employment will not voluntarily contribute to the SS Program. It has to be all employees or none (law of large numbers) for this approach to be valid. Another factor with all income benefit programs is mortality credits. It has been my experience after many years in the pension business that very few folks know about mortality credits and how such credits affect and help funding. The folks that die before starting benefits or do not live long lives after starting benefits leave money in their applicable programs (i.e., SS Program, Defined Benefit pension Plans, etc.). Mortality credits are just as important as interest/dividends/capital gains on contributions to an income benefit program (aka deferred compensation). So, allowing folks at a later point in life to contribute or not (which is a form of adverse risk) is a huge benefit to folks in non-covered employment which are mostly government folks (i.e., Federal, State, County, Municipal, etc. including teachers in some States/jurisdictions). Why should certain folks in non- covered employment have this advantage over folks in covered employment. Moreover, many government folks in non-covered employment do not work or stay on the job anywhere near the length of time folks in covered employment do. This is because of early retirement provisions that pay unreduced (full) pensions at ages earlier than 66 to 67 (SS program). Some as early as age 50.. So, folks with their entire career in covered employment may contribute (FICA Taxes) for more than 40 years and only 35 years are used for the Primary Insurance Amount formula in the SS Program. For example, in my case, I contributed for 46 years and only 35 years are used in the SS Program. I am not holding my breath waiting for a refund with interest for 11 years of excess contributions because I know the SS Program is not a retirement program. It is a social insurance program and excess contributions (FICA taxes) are needed just like mortality credits. Not many folks in non-covered employment will forward a couple hundred thousand dollars to the SS Program and risk not getting any money back. .
The Government Pension Offset is supposed to take away benefits from spouses who have a pension from work from which they did not contribute to FICA. The GPO ignores any time that they were actually dependent on their spouse. The penalty is only based on the amount of the pension. This penalizes parents who have stayed out of the workplace to raise their kids. It discriminates agains traditional families.
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You have lost me - The GPO is based on the pension amount NOT time worked.
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