SOCIAL SECURITY 

Office of the Chief Actuary

November 13, 2014 

The Honorable Kevin Brady 

House of Representatives 

Washington, D.C. 20515 

Dear Mr. Brady: 

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

Security Trust Funds of H.R. 5697, the “Equal Treatment of Public Servants Act of 2014” 

introduced today by you with Representative Neal to replace the windfall elimination provision 

(WEP) with a new formula that you have referred to as the “Public Servant Fairness Formula” 

(PSF). The 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 as though all past earnings 

(including earnings in our records starting with 1978 in employment that was not covered under 

the OASDI program) would be included, and 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. 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 

Aindriu Colgan of your staff in the development of this new proposal. His help in clarifying the 

intent of the proposal, which we describe below, was essential. Estimates provided for this 

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

Kestenbaum, Jacqueline Walsh, and Chris Chaplain. 

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 non-covered earnings on 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 

from each employer who paid the worker any non-covered wages since 1978, of the worker’s 

status regarding entitlement to a periodic payment based on the non-covered earnings would be 

required before the end of calendar year 2016. In the absence of this certification from all such 

employers, the WEP would be applied to all OASDI benefits paid on the worker’s account 

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

any “overpayment” determined to be 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. 
2

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

indication of whether the worker is (a) eligible to receive (vested for) any benefit based on the 

non-covered earnings, (b) currently receiving a periodic payment based on the non-covered 

earnings, and if so when payments started, (c) whether future payments are expected in the 

absence of a current payment, and (d) 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 from OASDI 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. Reductions to 

benefits paid in 2017 and later on the basis of these overpayments in past benefits would be 

subject to the SSA’s use of waiver authority/payment plans where appropriate.

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, 

based on the best available data at that time so that the overall estimated OASDI net program 

cost effect of the provisions of this Bill will be neutral for the calendar year period 2017 through 

2023. At this time, we estimate that the rebate percentage that will lead to this program cost 

neutrality will be about 32 percent. 

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

after 2016 who 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 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 $2.7 billion total 

for years 2017 through 2023 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 32-percent reduction (rebate) in the amount of the WEP 

reduction applied for benefits for January 2017 and later.. In the long run, 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 2013 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. This analysis has allowed us to model the potential effect of the proposal 
3

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 then model the expected effects of the proposal for benefit 

payments starting in 2017. Initially, the proposal would affect substantial numbers of Federal, 

state, and local government employees and former employees. 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 solely to the roughly 25 percent of all state and local 

government employees who are not covered by OASDI.

Sincerely,

 

Stephen C. Goss

Chief Actuary