SOCIAL SECURITY 

Office of the Chief Actuary

June 29, 2016 

The Honorable Kevin Brady 

House of Representatives 

Washington, D.C. 20515 

Dear Chairman Brady: 

I am writing in response to your request for an update of our estimate of the financial effects on 

the Social Security Trust Funds of H.R. 711, the “Equal Treatment of Public Servants Act of 

2015,” which you introduced on February 4, 2015 with Representative Neal. This proposal 

would replace the windfall elimination provision (WEP) with a new formula that you have 

referred to as the “Public Servant Fairness Formula” (PSF). 

Since we produced our initial estimate for the effects of this proposal in November 2014, we 

have discovered two data issues in the Social Security Administration’s earnings records that 

have caused us to reestimate the effects of the proposal. The first issue with data was easily 

resolved: workers with earnings covered under the Medicare Hospital Insurance program but not 

under Social Security were not recognized as having earnings not covered under Social Security. 

We fixed this issue with the letter sent to you on March 17, 2016, resulting in an increase in the 

estimated net reduction in Social Security benefits through 2023 under the proposal for those 

becoming newly eligible after 2016 from $2.7 billion to $6.8 billion. 

The second data issue is more challenging, as it involves an overstatement of earnings not 

covered by Social Security in the first 4 years such non-covered earnings were recorded, 1978 

through 1981. In practice, correcting the overstatement of such non-covered earnings will require 

careful development of an approach for identification, and also the opportunity for individuals to 

verify whether they did indeed have non-covered earnings in these years. For the purpose of the 

estimate presented here, we have developed a rough protocol for identifying overstated noncovered earnings and are assuming that adjustments to the historical record would be made to 

this extent in practice. Using this protocol, we estimate that the equivalent net reduction in 

benefits through 2023 for individuals newly eligible after 2016 under the PSF approach would be 

$3.4 billion. We also reestimated the number of individuals eligible for a Social Security retiredworker or disabled-worker benefit at the end of 2016 who have non-covered earnings and are not 

being reduced by the current-law WEP provision. Thus, as seen below, we have also revised our 

estimate of the “rebate percentage” described below. We emphasize that earnings records 

involving OASDI non-covered earnings are complicated and that actual adjustments that might 

be made in practice may have significantly different results from what we are now assuming. 

This proposal reflects your prior bills in concept, replacing the current complex WEP with a 

more straightforward approach designed to provide retired-worker and disabled-worker 

beneficiaries (and their dependents) with a benefit computed with all past earnings included 

(including earnings in employment that was not covered under the OASDI program in our 
The Honorable Kevin Brady – Page 2

records starting with 1978, assuming appropriate adjustment of such earnings for overstatement 

in years 1978 through 1981), then multiplied by the ratio of the average indexed monthly 

earnings (AIME) computed without non-covered earnings to a modified average indexed

monthly earnings (AIME′) that includes both covered and non-covered earnings in our records. 

Another way to describe the new approach is that beneficiaries will receive a benefit that reflects 

the replacement rate applicable for a worker with the same career earnings, where all earnings 

had been covered. Effectively, the PSF formula would compute the worker’s PIA as the ratio of 

PIA based on all earnings (covered and non-covered) to the average indexed monthly earnings 

(AIME) computed based on all earnings, multiplied by the AIME based on covered earnings 

only. These two ways of describing the new approach are mathematically equivalent.

Importantly, for workers becoming eligible for OASDI benefits after 2016, the proposal would 

eliminate the requirement for receipt of a pension based on earnings not covered by the OASDI 

program in order to apply the new PSF reduction. We have enjoyed working with Amy Shuart 

and Lara Rosner of your staff in the development of this proposal. Estimates provided for this 

proposal reflect the efforts of many in the Office of the Chief Actuary, but particularly 

Jacqueline Walsh, Chris Chaplain, and Karen Glenn.

The new PSF would be applied for all retired-worker and disabled-worker beneficiaries who are 

newly eligible for benefits after December 2016. For workers who (1) were eligible for a Social 

Security retired-worker or disabled-worker benefit as of December 2016, (2) have at least one 

year with verified non-covered earnings in SSA records, (3) have no old WEP reduction under 

current law for December 2016, and (4) have less than 30 “years of coverage” (YOCs), 

certification would be required before the end of calendar year 2016 from each employer who 

paid the worker any non-covered wages since 1978. This certification would specify whether the 

worker is entitled to a periodic payment based on his or her non-covered earnings. In the absence 

of this certification from such employers, the WEP would be applied to all OASDI benefits paid 

on the worker’s account starting in 2017, and would also be assessed on all past benefits paid on 

the worker’s account, with any “overpayment” withheld from future benefits. Reductions to 

benefits paid in 2017 and later on the basis of these overpayments would be subject to the SSA’s 

use of waiver authority/payment plans where appropriate. 

For the purpose of this estimate, we are assuming that the employer certification would indicate:

(1) whether the worker is eligible to receive (vested for) a benefit based on the non-covered 

earnings; (2) whether the worker is currently receiving a periodic payment based on the noncovered earnings and, if so, when payments started; (3) whether future payments are expected in 

the absence of a current payment; and (4) the amount of any current and past periodic payments 

based on non-covered earnings. If the worker is certified to have no pension eligibility based on 

any past non-covered earnings, then no WEP will be applied. If certification indicates current 

payments and the duration of past payments, then the WEP will be applied to current, future, and 

past benefits after the periodic payments started, with due consideration of the limit based on 

pension amount. If current payment is certified without indication of when payments started, 

then the current WEP will be applied to all current, past, and future benefits on the worker’s 

account. If certification indicates eligibility for a pension based on non-covered earnings with no 

current payment, then SSA will develop procedures for determining when such payments will 

commence in the future, at which time the WEP would apply. 
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Finally, a rebate, in the form of a percentage reduction in the amount of the WEP offset, will be 

provided for all WEP offsets applicable to benefits paid for 2017 and later. The size of the rebate 

percentage will be promulgated by the Commissioner of Social Security based on a calculation 

made by the Social Security Administration’s Chief Actuary in November 2016. The Chief 

Actuary will use the best available data at the time to determine the rebate percentage to be as 

high as possible, but not in excess of 50 percent of the WEP reduction, and limited to assure that 

the net effect of the Bill on Social Security program cost through 2025 would be neutral or 

positive. At this time, we estimate that a rebate percentage of 43 percent would be applicable.

The proposal will result in added program cost for workers newly eligible for an OASDI benefit 

after 2016 whose benefit amount would be reduced less by the PSF than by the WEP. However, 

because this proposal does not require receipt of a pension based on non-covered earnings, and 

eliminates most exemptions from adjustments based on non-covered earnings for workers 

becoming newly eligible for OASDI benefits after December 2016, our estimate reflects small 

benefit reductions from the PSF for a relatively large number of workers who would not be 

reduced by the WEP. The net OASDI program benefit savings are estimated at $6.7 billion total 

for years 2017 through 2025 for those newly eligible for OASDI benefits after 2016. 

We estimate additional savings from benefit reductions for application of the WEP under this 

proposal to worker beneficiaries eligible for OASDI benefits in December 2016 who do not have 

a reduction for the WEP but are not certified to be exempt. The combination of the expected 

savings for the workers becoming newly eligible both before and after the end of 2016 are 

estimated to be sufficient to allow for a 43-percent reduction (rebate) for all workers eligible as 

of December 2016, in the amount of the WEP reduction applied for their benefits for entitlement 

in January 2017 and later. Over the long-range period, the net effect on the 75-year actuarial 

balance would be an increase (improvement) of 0.02 percent of payroll. All estimates are based 

on the intermediate assumptions of the 2015 Trustees Report. 

Our estimates for the proposal reflect extensive innovative analysis of data for individuals born 

in 1950 with experience through June of 2013, including SSA records of earnings not covered by 

OASDI back to 1978, with adjustments for the estimated degree of overstatement of non-covered 

earnings in our records for the years 1978 through 1981. This analysis has allowed us to model 

the potential effect of the proposal for 2013 as if it were fully in effect for all retired and disabled 

workers at that time. Based on these results, we were able to model the expected effects of the 

proposal for benefit payments starting in 2017. Initially, the proposal would affect substantial 

numbers of current and former Federal, state, and local government employees, plus certain other 

individuals receiving payments counted as wages that are not covered. Over the long-range 

period, the implications of the proposal would progress because the closed group of Federal 

government employees who are not covered by OASDI were all hired before 1984. Eventually, 

the group affected by the proposal will be limited principally to the roughly 25 percent of all 

state and local government employees who are not covered by OASDI.

Sincerely,

 

Stephen C. Goss

Chief Actuary