The WEP affects Social Security benefits for people who are eligible for both Social Security and government pensions (such as TRS) by modifying the formula used to calculate their Social Security benefit.
The standard formula for figuring Social Security benefits averages a person’s pre-retirement earnings by dividing total pre-retirement earnings by 35 years, then dividing that amount by 12 to find the average monthly earnings (AME). The dollar amounts in the formula vary yearly according to inflation. The dollar amounts that follow are one example of a calculation for someone turning 62 in the year 2014: The first $816 of the AME is multiplied by 90 percent. The next $4,917 of the AME is multiplied by 32 percent, and the remaining amount of the AME is multiplied by 15 percent. The three amounts are then added together to determine a person’s monthly annuity.
The WEP modifies this formula for employees who are eligible for a government (TRS) pension by multiplying the first $816 of the AME by a smaller percentage that is based on the number of years the person paid Social Security taxes on substantial earnings (a designated amount adjusted yearly to reflect economic trends).
The percentage increases from 40 percent to 90 percent as an individual’s years of substantial earnings increase from 20 to 30. For example, a person who has paid Social Security taxes on substantial earnings for 20 or fewer years will have the first $816 of his AME multiplied by 40 percent, whereas a person with 26 years of substantial earnings will have the first $816 of his AME multiplied by 70 percent, and so on up to 30 years. Once a person reaches 30 years of substantial earnings he or she is restored to the full 90 percent multiplier and is no longer affected by the WEP.
Keep in mind that these are examples provided for illustration purposes only, and your benefit calculations may vary.