MainePERS & Social Security
Teaching can be a thankless job, and it’s no secret that our educators earn modest wages. In 2022, teachers made 26.4% less than other similarly educated professionals (1). This gap has been widening for decades.
One area where teachers make up just a little bit of ground is in benefits offerings. In Maine, the MainePERS Retirement Pension is a significant contributor to this.
Maine Public Employees Retirement System has been administering the Retirement, Disability Retirement and Group Life Insurance benefits for Maine’s teachers, state employees and employees of other public entities since 1942. Its system and programs can be difficult to navigate on your own, especially the relationship between a MainePERS retirement benefit and Social Security. As someone who has worked with educators for a long time, I can tell you there is no topic more hotly debated and scrutinized. Let’s break down this relationship.
What is a MainePERS Retirement Pension?
It’s a Defined Benefit Plan. This means employees contribute a percentage of pay to the plan (7.65% of each check for most), the state also contributes some funds, and the employee gets a defined amount of money (benefit) each month when they retire. Generally, that benefit is based on years of service and the average of their last three years of compensation.
Someone with a full career in teaching, say 40 years, would receive about 80% of their average final compensation for the rest of their life as a pension. That’s a lot better than Social Security, where a person who averaged career earnings of $55,000 would receive around 46.85% of their income (and would have contributed the same 7.65% along the way!)
This sounds like an outstanding benefit for teachers, and it is, but the reality is most teachers do not spend their entire career here. Many of them have a stint of employment covered by Social Security.
What does Social Security have to do with MainePERS?
If you receive a MainePERS pension and are eligible for Social Security, your Social Security Benefit will likely (but not always) be reduced by the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO). WEP reduces benefits you are eligible to receive on your own Social Security record. GPO reduces benefits you are eligible to receive as a spouse.
That seems unfair! Why does this happen?
The simple answer is because MainePERS is offered in lieu of Social Security, not alongside Social Security. WEP and GPO are setup to impact people who receive a pension from work they performed while not contributing to Social Security. While you work under MainePERS covered employment, you do not contribute to Social Security.
The more complicated answer relates to how a worker could abuse the Social Security system by switching careers. As a social program, Social Security is set up to give lower wage earners a higher percentage benefit replacement in retirement than larger wage earners. They average 35 years of earnings history, and if your average earnings is $14,088 or less, they will actually give you 90% of that amount as a benefit! This means that as soon as a worker reaches $493,080 ($14,088 x 35) in career earnings, they have achieved that 90% replacement ratio.
Imagine someone works 5 years under Social Security covered work at $98,616/year (hitting the $493,080 total from above), then switches to a MainePERS-covered job earning the same wages. That person will get a nice fat Defined Benefit Pension in addition to a 90% replacement ratio from Social Security! Compare that to someone who averages $98,616/year only under Social Security. They get just 40.28% of their wages replaced as a retirement benefit.
GPO and WEP were passed in 1977 and 1983, respectively, to combat this.
Setting the record straight
In my experience dealing with these matters, WEP and GPO are widely misunderstood. Here are a few points I think are important to understand:
- A MainePERS Pension is never reduced due to WEP or GPO. It only impacts Social Security Benefits.
- WEP cannot reduce your Social Security Benefit to zero. In fact, the maximum reduction is 50%. If you are not getting a Social Security benefit, it is likely because you never qualified.
- GPO can reduce your benefits as a spouse to zero. Generally, you take 2/3 of your MainePERS Pension and use that to reduce your spousal benefit. I find it often goes to zero.
- GPO only applies to the benefits of the MainePERS-earning spouse. It does NOT impact the spouse who does not receive a MainePERS Benefit.
- Most MainePERS-covered employees do not contribute to Social Security.
Doing the math
Although this topic is complex and confusing, it shouldn’t be ignored. Many people neglect to calculate the impact and incorporate it into their long-term retirement plan. Additionally, there are opportunities to eliminate a WEP or GPO reduction. These typically involve accumulating enough years of “substantial” earnings under Social Security or cashing out your contributions to MainePERS and forfeiting the employer funds.
You can always consult a financial advisor to help navigate these issues and impacts but here are some great resources for those comfortable figuring it out on their own:
WEP Overview Guide & Substantial Earnings Chart:
https://www.ssa.gov/pubs/EN-05-10045.pdf
GPO Overview Guide:
https://www.ssa.gov/pubs/EN-05-10007.pdf
WEP Calculator:
https://www.ssa.gov/benefits/retirement/planner/anyPiaWepjs04.html
GPO Calculator:
https://www.ssa.gov/prepare/government-and-foreign-pensions
(1) https://www.epi.org/publication/teacher-pay-in-2022/
