Ask the Advisor: April/May 2020

Ask the Advisor: April/May 2020

I’m Entitled to a Pension for Work as a City Cop…

Should I Continue to Pay Into Social Security for Other Work I am Doing Now?

Q:  I worked in a California city police department for 30 years and I’m now entitled to a pension.  For the past 8 years, I’ve also paid into Social Security for self-employment earnings from a small company that I own.  My accountant tells me that, in order to qualify for Social Security benefits, I should continue to work at my company and send in in two more years’ worth of taxes.  Will this be worth it?

A:  It’s hard to say until you crunch the numbers.  You may qualify for Social Security benefits with as little as ten years of work through your self-employment.  But even if you do, you will be subject to the Windfall Elimination Provision (WEP) which reduces Social Security benefits when you receive a pension based on non-covered government employment.

The WEP affects people who worked for a state or local government employer that did not withhold Social Security taxes from salary.  When you claim the pension for your work as a police officer, the WEP can reduce your Social Security benefit by as much as half of the amount of your pension.

In addition, your Social Security benefit is likely to be small anyway.  When Social Security calculates the initial benefit, the amount of total earnings would be averaged over a 35-year (420 month) period to determine your average monthly earnings.  While you become eligible with a little as ten years of earnings total, the SSA will still average your earnings over the 420-month period.  This would produce a low average initial benefit amount.  Then the WEP adjustment would reduce your initial benefit formula by scaling back the amount of average monthly earnings that would be credited toward your benefit.

Congress first approved the WEP in 1983 as part of a large package of Social Security reforms that included increasing the full retirement age.  The stated intent was to remove an unintended advantage for workers who collect non-covered pensions, but also did some work in jobs covered by Social Security.

TSCL supports legislation that would repeal the WEP such as H.R. 3934, the Equal Treatment of Public Servants Act of 2019, bipartisan legislation introduced by Representative Kevin Brady (TX-8).

To learn more about the WEP, download the Social Security Administration Publication No. 05-10045 here —