Windfall Reduction Provision and 401(k)
ESPlanner does not seem to be implementing a WEP reduction to my social security benefits. My situation is the following: I am 70+ and began receiving SSA benefits a few months ago based on covered employment early in my career. I am currently employed in a non-covered position and instead contibute (together with my employer) into a 401(k). My understanding based on substantial research (see for example * below) is that, when I eventually retire, the SSA will actuarially prorate my 401(k) accumulation into a monthly payment amount and regard this as the amount of my monthly "pension." This then will be fed into the WEP calculator to find the amount of the WEP reduction to my benefits. I do not see this procedure implemented in ESPlanner. To the best of scrutiny, ESPlanner seems to make no note of WEP at all in my case. Please let me know if I am missing something.
Thu, 06/25/2015 - 15:36
ESPlanner does account for
ESPlanner does account for WEP and GPO, but I don't know the details of this situation you describe. I'd have to ask someone here.
Thu, 06/25/2015 - 16:49
If you included a non-covered
If you included a non-covered pension on the Pensions tab, then ESPlanner is applying both the WEP and the GPO. You can see the effect of the WEP and GPO by temporarily indicating that the pension is covered and comparing the reselts to the non-covered pension results.
Thu, 06/25/2015 - 19:54
rvesp does NOT have a
rvesp does NOT have a traditional, recurring monthly pension from his/her non-covered employment. He/she has a 401(k) account from his/her non-covered employment from which he/she can take distributions at will, except after 70 1/2, he/she must take annual required minimum distributions.
He/she can enter a lump sum from the 401(k) of the non-covered employment which will trigger the WEP reduction in ESPlanner but then it also distorts the leveling of annual consumption and triggers higher income tax rates for the year of the lump sum distribution.
I have a similar issue in that I have 21 years of covered employment but also opted out of a state employee retirement system for participation in an alternate retirement plan (where the state university and I both contributed to a private retirement plan like a 401(k)). I have no traditional pension, but can take distributions as I please from any of my traditional IRAs, 403(b) accounts, savings, and/or the alternate 401(k) account from my non-covered employment.
Like rvesp, I cannot figure out how to get ESPlanner to calculate the WEP reduction from my projected SS retirement benefit. I have manually determined the maximum WEP reduction to be no more than $371.70 per month based on my age (soon to be 62) and my 21 years of covered employment from the SSA.gov website (see http://www.socialsecurity.gov/planners/retire/wep-chart.html).
How can we reflect this in ESPlanner?
Thu, 06/25/2015 - 20:20
Could a check box for non
Could a check box for non-covered employment be added to one or more of the fields on the Retirement Accounts-Assets tab in order to trigger WEP reductions for alternate or optional retirement account assets accumulated during non-covered employment?
Fri, 06/26/2015 - 09:17
Hello fmarker, Thanks for
Hello fmarker, Thanks for clarifying our common situation. As it happens, I too consulted the wep-chart you've cited and read off the maximum WEP reduction given my data. At some point, I also noted the cautionary note that appears above the chart:
``If your retirement benefits start after full retirement age or your non-covered pension starts later than your eligibility year, the WEP reduction may be greater than the maximum shown in the chart.''
This prompted me to run the (admittedly unwieldy) "detailed calculator" offered by Social Secuity to calculate my WEP reduction and... sorry to say... the result was a larger figure than that in the WEP chart. Unwelcome news for sure if it's correct, and in fact what finally prompted me to inquire about implementation in ESPlanner of WEP in our circumstance. Given my positive experience of ESPlanner in other ways, I too am eager to have it as an option.
Fri, 06/26/2015 - 14:32
I've put the implementation
I've put the implementation of the WEP, per POMS Section RS 00605.364.C.4, for non-covered 401(k) plans that allow an individual who is eligible for retirement or disability benefits to determine the disbursement amount, the duration of the pension, or the start date on our "to-do" list.
In the interim, can you use a special expense equal to the WEP to reduce your Social Security benefit?
Fri, 06/26/2015 - 19:27
Mike, I thought about doing
Mike, I thought about doing that but then other numbers may be distorted.
Fri, 06/26/2015 - 19:36
Mike, the other wrinkle which
Mike, the other wrinkle which you should consider in the implementation of the WEP reduction in ESPlanner, per POMS Section RS 00605.364.C.4, may be in my case, but not rvesp's scenario because of his/her age, is to calculate whether the WEP reduction can be eliminated entirely IF I completely deplete my non-covered 401k assets, for example by taking 8 equal distributions between age 62 and 69, prior to filing for my SS retirement benefits at age 70.
Sat, 06/27/2015 - 11:24
I think the special expenses for the WEP works fine.
I changed a traditional non-covered pension to covered and added a special expenses that are excludable from AGI equal to 85% (the percent by which SS was taxable) of the WEP and non-tax related expenses for the remaining 15% of the WEP.
The Standard of Living per Adult for the covered pension with special WEP expenses was within 0.07% of the non-covered pension case.
Mon, 06/29/2015 - 09:00
Mike, Would you give a step
Mike, Would you give a step by step description of implementing your work-around in such a case as mine?
Tue, 07/14/2015 - 11:03
rvesp, If you have 30 years
rvesp, If you have 30 years of covered employment, there is no WEP reduction. Otherwise, I think your work-around is just as Mike outlines above:
-maintain your SS benefit as is,
-enter your estimated 401K computed "pension" when you expect to retire as a covered pension,
-enter 85% of your calculated WEP reduction as a special expense that is excluded from AGI, and
-enter 15% of your calculated WEP reduction as a special expense that is not tax related.
Wed, 07/15/2015 - 14:49
fmarker, Thanks very much. I
fmarker, Thanks very much. I've implemented 3 of your 4 bullets, but I'm not sure why I should
``-enter your estimated 401K computed "pension" when you expect to retire as a covered pension'' ?
Why not just leave it as a 401(k) that esplanner uses it as a retirement account? I may not want to withdraw from it according to the schedule used by SS in their ``401(k) as pension'' calculation.
Fri, 07/17/2015 - 11:23
If you are over 70.5 years
Yes, you are correct. Sorry.
I guess it remains to be seen whether Social Security will invoke the WEP reduction from your SS benefits based on the theoretical, not actual, RMDs from you 401K once you stop working. Kotlikoff, et. al, in "Get What's Yours" suggest that the actual application of WEP reductions has been inconsistent on a case by case basis dependent on the individual SS representative or SS office.