WEP and Defined Contribution Plan

[luissaha]

Does anyone know how Social Security's Windfall Elimination Provision (WEP) would apply to a governmental defined contribution plan?  For example, some governmental agencies have done away with db plans as their Social Security replacement plan, and moved new hires into dc plans.  Some of these new hires have Social Security earnings from prior jobs and are wondering how or if the WEP would apply to them.  I'm not sure how it would work.  Does anyone have any insight on this?  Any help would be appreciated.

[Peter Gulia]

These publications might help you learn the “Windfall Elimination Provision”:

 

https://www.ssa.gov/pubs/EN-05-10045.pdf

 

https://www.ssa.gov/planners/retire/wep.html

 

https://www.ssa.gov/planners/retire/wep-chart.html

 

https://www.ssa.gov/planners/retire/anyPiaWepjs04.html

 

https://www.ssa.gov/OACT/anypia/anypia.html

 

The effect can be startling if a worker had many periods of noncovered work.

 

[eeyore]

Yes, WEP can apply to a governmental DC plan. I assume you are familiar with the rules if the governmental employee only participates in a DB plan. If there are two or more plans, the WEP applies to the primary plan, almost always the DB plan. In this case, the DC plan is ignored. However, if the employee only has a DC plan, the WEP rules apply to this. Once the employee takes a distribution, the balance in the DC plan is converted under the WEP rules to an equivalent annuity, and this is used to determine the WEP offset.

Note: if the employee does a rollover from the governmental DC plan, that counts as a distribution for the purposes of the WEP. Employees should think carefully about this. If they don't need to take distributions to cover living expenses, they may be better off leaving all the funds in the governmental DC plan, since this will delay the application of the WEP offset.