ATPE News is the official publication of the Association of Texas Professional Educators, the largest educator association in Texas. The magazine addresses the most important issues affecting public education in the state. Learn more at ATPE.org.
Issue link: https://atpe.epubxp.com/i/686691
Learn how your teacher pension afects your Social Security benefts. YOUR SOCIAL SECURITY AND RETIREMENT BENEFITS Texans on education by Devin Carroll, fnancial advisor and owner of Carroll Investment Management Did you know that Texas is one of only 15 states where most teachers do not participate in Social Security? Instead, the state has its own pension plan— the Teacher Retirement System of Texas (TRS). This is not necessarily a bad thing, but it can cause confusion if you don't know the rules about how Social Security benefts and Texas teacher retirement pensions ft together. A Closer Look A few decades ago, the Social Security Act was amended in an effort to prevent people from receiving both a Social Security beneft and a pension from a job where they did not pay into the Social Security system. The result of this amendment is a set of rules that affect many Texas teachers' ability to claim Social Security benefts. The rules are called the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These provisions reduce or eliminate Social Security benefts for individuals who worked at a job where they: (A) did not pay Social Security tax and (B) qualifed for a pension. It's important to understand that the WEP rule only applies to individuals who are entitled to a Social Security beneft based on their own work history and have a pension from a job where they did not pay Social Security tax. Meanwhile, the GPO rule only applies to individuals who are entitled to a Social Security beneft as a survivor or spouse and have a pension from a job in which they did not pay Social Security tax. Windfall Elimination Provision The WEP changes how your Social Security is calculated, which results in a lower beneft amount. This provision causes confusion for those who have worked at a job where they paid enough in Social Security taxes (either before or after their teaching career) to qualify for a Social Security beneft. Under the WEP: • The maximum Social Security reduction will never be greater than 1/2 of your pension amount. • If you have more than 20 years of "substantial covered earnings" (where you paid Social Security tax), the impact of the WEP begins to lessen. At 30 years of substantial covered earnings, the WEP goes away completely. For some, the opportunity to reduce the impact of WEP offers a great retirement income planning opportunity if you worked at a job where you paid Social Security tax. For example, if you worked as an accountant for 20 years before you began teaching, you may be able to do enough part-time work between now and when you retire to completely eliminate the monthly WEP reduction. Would it be worth it? If you consider how much more in benefts you could receive over your retirement lifetime, it could be worth $100,000 in extra income over a 20-year retirement. The WEP provision has been around for more than three decades, but it could be changing soon. Recently, ATPE-supported legislation was introduced that would repeal the current version of the WEP. Representatives Kevin Brady (R-TX) and Richard Neal (D-MA) co-sponsored H.R. 711: EQUAL TREATMENT OF PUBLIC SERVANTS ACT OF 2015. If this reform is passed, the WEP formula will be replaced with the Public Servant Fairness Formula, which should decrease the amount that most teachers are subject to. Government Pension Ofset If you meet both of the requirements for the GPO (you are entitled to a Social Security beneft as a survivor or spouse and have a pension from a job where you did not pay Social Security tax), your Social Security survivor or spousal beneft will be reduced by an amount equal to 2/3 of your pension. As an example, let's say Nicole worked for 30 atpe.org | 15 summer 2016 GPO REDUCTION FORMULA $3,000 Nicole's Pension (x) 2/3 GPO Reduction $2,000 Reduction to Social Security Survivor or Spousal Benefts APPLICATION OF GPO REDUCTION $2,300 Nicole's SS Survivor Beneft (-) $2,000 GPO Reduction $300 Nicole's SS Survivor Beneft After GPO Reduction continued on page 40