I have been contributing to both Social Security and a non-covered pension. The non-covered pension is in a cash balance plan that allows me to take the benefit in several different ways. As a direct payment, as a rollover into an IRA, as a lifetime annuity or a 3 to 10 year annuity. Will any of these be better in terms of reducing the amount of my WEP deduction from Social Security?

I believe if I take the non-covered pension benefit as a term annuity and it ends before I start collecting Social Security then I won't have a WEP deduction. Is this true?

Thanks

Hi. I can't give you a definitive answer. When a person can choose the disbursement amount or the duration or start date of their non-covered pension, Social Security treats the disbursement as a lump sum payment effective with the date that the individual first becomes entitled to the pension. The lump sum amount is then prorated into a monthly rate for either a specific period or over the person's expected lifetime using an actuarial proration formula as explained in the following section of Social Security's operations manual: https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605364#c5.

The above reference states that if the pension-paying agency specifies a period, then the lump sum is prorated over that specified period of time. Therefore, if you choose a short term annuity that ends before your Social Security benefits start, then I think you could at least argue that WEP should not apply based on the wording of this reference. I'm not sure that Social Security will see it that way, though. But, if they end up prorating the total amount over your actuarially expected lifetime then you could appeal their determination.

Best, Jerry