SOCIAL SECURITY

Office of the Chief Actuary

March 17, 2016

The Honorable Kevin Brady

House of Representatives

Washington, D.C. 20515

Dear Chairman 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. 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). 

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 with all past earnings included (including 

earnings in employment that was not covered under the OASDI program in our records starting 

with 1978), 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 Aindriu 

Colgan and Amy Shuart 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 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
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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. 

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 the maximum permissible rebate percentage of 50 percent 

would be applicable, resulting in a roughly $3.5 billion net reduction in cost through calendar 

year 2025.

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 $13.6 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 
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estimated to be sufficient to allow for a 50-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 0.05 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. 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