Many people are surprised to hear that not all workers are covered by Social Security. But for the 1.2 million public school teachers who remain without coverage, this remains a daily reality. Teachers in California, Texas, Illinois, Massachusetts, and Connecticut, to name just a few of the non-participating states, neither pay into nor receive Social Security.
To deal with this spotted landscape, Congress created two somewhat obscure policies that affect workers and families who split their time in and out of Social Security. These teachers face two provisions on any Social Security benefits they may have earned outside of the classroom: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
Both provisions were passed to align with Social Security’s design. Social Security is based on a progressive benefit formula, meaning lower-income workers receive a greater proportion of benefits relative to their income than higher-income workers do. Social Security collects taxes from employee each year based on their earnings, and then at retirement age, the worker’s Social Security benefit is based on those contributions. But teachers who don’t participate in Social Security don’t contribute either. When they retire, they will appear to Social Security to have a lower income, and in turn, qualify for a larger, progressive benefit.
To give a real-world example, consider a California science teacher who worked half her career as an engineer and half as a teacher. As an engineer, she and her employer both paid into Social Security, but during her years as a public school teacher in California, neither she nor her district employer paid into Social Security. When she retires, she’ll have contributions for her time as an engineer and a series of zeros for her years in the classroom. She’ll therefore appear to have an income much lower than what she actually earned.
Without WEP, the Social Security formula would try to make up for low income and provide her a proportionally more generous benefit. Under WEP, however, her individual benefits are reduced so they eliminate this initial advantage. As a result, the teacher may face a maximum reduction equal to half of her pension (up to $413 monthly or almost $5,000 annually). If she’s married and has a spouse who paid into Social Security, her spousal benefits (if she chooses to collect) are reduced by an amount equal to two-thirds her teacher pension under GPO. The WEP and GPO provisions are meant to even out any advantage a pensioned worker may receive from non-coverage.
This may work out for a teacher with an ample pension, but for the majority of teachers who will more likely end up of with partial pension, further truncating Social Security benefits will only make their retirement more precarious. Unfortunately, many teachers do not realize that their benefits will be reduced at retirement and do not plan accordingly. Placing all teachers in Social Security, while also providing teachers with adequate state-sponsored retirement plans, would enable more teachers to be prepared for retirement.
To learn more about teachers and Social Security coverage, see our Resources page here.