oversight

Windfall Elimination Provision Exemptions

Published by the Social Security Administration, Office of Inspector General on 2019-08-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

           Audit Report




Windfall Elimination Provision
         Exemptions




    A-13-17-34132 | August 2019
MEMORANDUM


Date:      August 8, 2019                                                   Refer To:

To:        The Commissioner
From:      Inspector General
Subject:   Windfall Elimination Provision Exemptions (A-13-17-34132)

           The attached final report presents the results of the Office of Audit’s review. The objective was
           to determine whether the Social Security Administration correctly exempted Old-Age, Survivors
           and Disability Insurance benefits from the Windfall Elimination Provision. Specifically, we
           reviewed exemptions for (a) workers who had 30 or more years of coverage subject to
           Social Security earnings, (b) workers who were eligible for a pension before 1986, and
           (c) Federal employees under the mandatory coverage provision.

           If you wish to discuss the final report, please call me or have your staff contact Rona Lawson,
           Assistant Inspector General for Audit, 410-965-9700.




                                                          Gail S. Ennis

           Attachment
Windfall Elimination Provision Exemptions
A-13-17-34132

August 2019                                                             Office of Audit Report Summary

Objective                               Findings

To determine whether the Social         Of 150 sampled beneficiaries, SSA improperly exempted 26 from
Security Administration (SSA)           WEP. Because of this processing error, the 26 beneficiaries were
correctly exempted Old-Age,             improperly paid approximately $774,000. Although the Agency
Survivors and Disability Insurance      was aware these 26 beneficiaries had received pensions, it did not
(OASDI) benefits from the Windfall      reduce their benefits for WEP. Of these 26 beneficiaries, SSA may
Elimination Provision (WEP).            not correct the payments for 24 because of SSA’s administrative
Specifically, we reviewed exemptions    finality rules. Based on our sample results, we estimate SSA
for (a) workers who had 30 or more      improperly paid approximately 3,600 beneficiaries $118 million.
years of coverage subject to Social
Security earnings, (b) workers who      Additionally, SSA exempted 28 beneficiaries from WEP where we
were eligible for a pension before      found the exemptions questionable. If SSA did not apply WEP, but
1986, and (c) Federal employees under   should have, we estimate the Agency paid these 28 beneficiaries
the mandatory coverage provision.       approximately $971,000 more than they were entitled to receive.

Background                              Because of its administrative finality rules, SSA may not correct all
                                        the payment errors we identified. If it does not take corrective
The Social Security Amendments of       action, we estimate the Agency will improperly pay an additional
1983 include a provision that           $140 million in future payments to these beneficiaries.
eliminates “windfall” Social Security
benefits for retired and disabled       Recommendations
workers who are receiving pensions
from employment not covered by          We made four recommendations pertaining to SSA’s exemptions of
Social Security.                        OASDI benefits from WEP.

WEP applies when the wage earner        SSA agreed with our recommendations.
becomes entitled to both a pension
based on non-covered employment and
Social Security benefits. Under WEP,
SSA uses a modified benefit formula
to determine a wage earner’s monthly
Social Security benefit. WEP applies
to both retirement and disability
benefits. However, under certain
circumstances, a beneficiary’s
payments are exempt from this
provision.
TABLE OF CONTENTS
Objective ..........................................................................................................................................1
Background ......................................................................................................................................1
Results of Review ............................................................................................................................3
     WEP Exemption A: Substantial Years of Social Security Earnings..........................................4
     WEP Exemption B: Pension Eligibility Before January 1, 1986...............................................4
     WEP Exemption C: Federal Employment .................................................................................6
     Administrative Finality ..............................................................................................................8
Conclusions ....................................................................................................................................10
Recommendations ..........................................................................................................................10
Agency Comments .........................................................................................................................10
                    – Windfall Elimination Provision .......................................................................... A-1
                    – Scope and Methodology ..................................................................................... B-1
                    – Sampling Methodology and Results ................................................................... C-1
                    – Windfall Elimination Provision Exemption A.................................................... D-1
                    – Agency Comments ...............................................................................................E-1




Windfall Elimination Provision Exemptions (A-13-17-34132)
ABBREVIATIONS
ASM                 Annuity and Survivors Master File

C.F.R.              Code of Federal Regulations

CSRS                Civil Service Retirement System

FERS                Federal Employees Retirement System

MBR                 Master Beneficiary Record

OARO                Office of Analytics, Review, and Oversight

OASDI               Old-Age, Survivors and Disability Insurance

OIG                 Office of the Inspector General

OPM                 Office of Personnel Management

POMS                Program Operations Manual System

Pub. L. No.         Public Law Number

SSA                 Social Security Administration

U.S.C.              United States Code

WEP                 Windfall Elimination Provision




Windfall Elimination Provision Exemptions (A-13-17-34132)
OBJECTIVE
Our objective was to determine whether the Social Security Administration (SSA) correctly
exempted Old-Age, Survivors and Disability Insurance (OASDI) benefits from the Windfall
Elimination Provision (WEP). Specifically, we reviewed exemptions for (a) workers who had
30 or more years of coverage subject to Social Security earnings, (b) workers who were eligible
for a pension before 1986, and (c) Federal employees under the mandatory coverage provision.

BACKGROUND
SSA administers the OASDI program to provide monthly benefits to retired or disabled workers
and their families and to certain survivors of deceased workers. 1 An individual may be eligible
for OASDI benefits under his/her own work history as well as under a spouse’s work history.

The Social Security Amendments of 1983 (Pub. L. No. 98-21) include a provision that eliminates
“windfall” Social Security benefits for retired and disabled workers who are receiving pensions
from employment not covered by Social Security. 2 WEP applies when the wage earner becomes
entitled to both a pension based on non-covered employment and Social Security benefits. 3
Under WEP, SSA uses a modified benefit formula to determine a wage earner’s monthly Social
Security benefit. 4 WEP applies to both retirement and disability benefits. 5 As of
December 2017, more than 1.8 million Social Security beneficiaries were affected by WEP. 6




1
    Social Security Act, 42 U.S.C. §§ 401, 402 (govinfo.gov 2017).
2
 Social Security Act, 42 U.S.C. § 415(a)(7)(B) and (d)(3) (govinfo.gov 2017); 20 C.F.R. §§ 404.213 and 404.243
(govinfo.gov 2018); and SSA, POMS, RS 00605.360, A (June 24, 2013).
3
 Non-covered employment is earnings from a Federal, State, or local government or a non-profit organization on
which no Social Security tax is paid.
4
 Social Security Act, 42 U.S.C. § 415(a)(7)(B) (govinfo.gov 2017); 20 C.F.R. § 404.213 (govinfo.gov 2018); and
SSA, POMS, RS 00605.360, A (June 24, 2013).
5
    SSA, POMS, RS 00605.360, C.4 (June 24, 2013).
6
    Congressional Research Service, Social Security: The Windfall Elimination Provision (WEP), p. 5 (2019).



Windfall Elimination Provision Exemptions (A-13-17-34132)                                                        1
Under certain circumstances, a beneficiary’s payments are exempt from WEP.

      Exemption A: Beneficiaries who have at least 30 years of substantial Social Security
       earnings. 7

      Exemption B: Beneficiaries who were eligible to receive payments from their pension plans
       before 1986. 8

      Exemption C: Beneficiaries who were Federal employees whose service began on
       January 1, 1984 and whose coverage under Social Security began on January 1, 1984, under
       the mandatory coverage provision in Pub. L. No. 98-21. 9

See Appendix A for more information on WEP.

According to SSA, WEP was a leading cause of computational errors related to overpayments. 10
In Fiscal Years (FY) 2013 through 2017, WEP accounted for 63 percent of reported computation
overpayment errors, and the average overpayments related to WEP totaled approximately
$520 million annually. 11 To address this issue, SSA released a series of training modules that
targeted both basic and complex WEP processing and policy issues, updated various Program
Operations Manual System references relating to WEP, and implemented several automation
enhancements to increase the accuracy of WEP issues. 12

To assist in making WEP determinations, SSA obtains from the applicant, entitlement
information related to current or future pensions based on non-covered earnings. For Federal
pensions, SSA matches the Office of Personnel Management’s (OPM) Annuity and Survivors
Master (ASM) file, which contains payment information for civil service annuitants, to its
Master Beneficiary Record (MBR). The WEP match determines whether SSA applies WEP or
there is an exemption. However, the Agency does not have a way to receive similar pension
information from State and local governments. As a result, many of these pensions go
unreported, which leads to improper payments. In its FY 2019 budget, the Agency proposed
entering into automated data-exchange agreements with State and local government pension
payers to facilitate reporting of information about pensions based on non-covered work. 13




7
  SSA, POMS, RS 00605.362, A (November 9, 2017). For 2017, $23,625 of covered wages was required to obtain
1 year of coverage.
8
    SSA, POMS, RS 00605.364, B.2 (October 12, 2017).
9
    SSA, POMS, RS 00605.362, B.1 (November 9, 2017).
10
     SSA, OARO, Fiscal Year 2017 Title II Payment Accuracy Report, p. 7 (September 2018).
11
     SSA, OARO, Fiscal Year 2017 Title II Payment Accuracy Report, p. 15 (September 2018).
12
     SSA, OARO, Fiscal Year 2017 Title II Payment Accuracy Report, p. 8 (September 2018).
13
     SSA, Office of Budget, Finance, and Management, Fiscal Year 2019 Budget Overview, p. 27 (February 2018).



Windfall Elimination Provision Exemptions (A-13-17-34132)                                                       2
We obtained an electronic data extract of 239,659 beneficiaries with WEP Exemption A, B, or
C. 14 After we applied additional screening criteria, we identified 31,733 beneficiaries who had a
higher risk of ineligibility for the exemption given. We randomly selected samples of
50 beneficiaries from each WEP Exemption. See Appendix B for a discussion of our scope and
methodology and Appendix C for our sampling methodology and results.

RESULTS OF REVIEW
We identified OASDI beneficiaries who were improperly paid because SSA had not correctly
applied WEP. SSA should have reduced their benefits because they received pensions based on
their non-covered employment. Of the 150 beneficiaries we sampled,

    26 were not eligible for WEP exemptions and were improperly paid approximately $774,000;

    28 had questionable WEP exemption eligibility and may have been improperly paid
     approximately $971,000;

    34 had a WEP exemption coded on the MBR but did not receive pensions;

    10 had a WEP exemption applied incorrectly but were actually eligible for a different WEP
     exemption; and

    52 were correctly exempted from WEP (see Table 1 and Table 2).

Based on our sample results, we estimate SSA improperly paid approximately
3,600 beneficiaries $118 million because Agency staff improperly exempted OASDI benefits
from WEP. Further, if SSA does not apply WEP, we estimate it will improperly pay an
additional $140 million over the beneficiaries’ lifetimes.

                                Table 1: WEP Exemption Review Results
                                                      WEP Exemption         Eligible for
                      Not Eligible                                                         Eligible for
                                     Questionable     Coded but Did          Another
      Group            for WEP                                                                WEP           Total
                                      Exemption        Not Receive             WEP
                      Exemption                                                            Exemption
                                                        Pensions            Exemption
WEP Exemption A             0              0                   33                 3             14           50
WEP Exemption B            10              3                    1                 1             35           50
WEP Exemption C            16             25                    0                 6              3           50
       Total               26             28                   34                10             52          150




14
  The MBR comprises 20 groupings of records called segments. We took our electronic data extract from all
20 segments.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                         3
                                  Table 2: WEP Exemption Overpayments
                                                                                     Questionable WEP
                                                            OASDI
                                                                                    Exemptions (Possible
                                                         Overpayments
                         Group                                                     OASDI Overpayments)

                                                     Number         Amount        Number          Amount
                   WEP Exemption A                        0               $0           0                $0
                   WEP Exemption B                       10         $337,770           3          $121,855
                   WEP Exemption C                       16         $436,478          25          $849,407
                          Total                          26         $774,248          28          $971,262


WEP Exemption A: Substantial Years of Social Security Earnings
Beneficiaries are exempt from WEP if they have at least 30 years’ substantial Social Security-
covered earnings. 15 Of the 50 beneficiaries sampled, 14 had substantial Social Security earnings,
and SSA correctly exempted their OASDI benefits from WEP. 16 Agency records showed three
beneficiaries were not eligible for the WEP exemption as coded on their MBR, but we
determined they were eligible for a different WEP exemption. 17 For the remaining 33, the
beneficiaries did not receive pensions. 18 These 36 beneficiaries did not have OASDI
overpayments. See Appendix D for more information.

WEP Exemption B: Pension Eligibility Before January 1, 1986
Beneficiaries are exempt from WEP if they were eligible to receive their non-covered pensions
before January 1, 1986. 19 To apply this WEP exemption, SSA primarily relied on applicants to
report their entitlement to current or future pensions from employment not covered by Social
Security. However, for retired Federal employees, OPM provided SSA monthly pension
notifications.

Of the 50 beneficiaries we sampled, SSA correctly exempted 32 from WEP. 20 Agency records
showed 1 of these 50 beneficiaries had the WEP exemption coded on his MBR but did not
receive a pension. In a second case, a beneficiary was not eligible for the WEP exemption as




15
     See Footnote Error! Bookmark not defined..
16
     SSA exempted 14 beneficiaries’ OASDI benefits from WEP; 1 beneficiary was deceased as of June 2018.
17
  Of the three beneficiaries who were not eligible for the WEP exemption as coded on their record, but eligible for a
different WEP exemption, one beneficiary was deceased as of June 2018.
18
     Of the 33 beneficiaries who did not receive pensions, 2 were deceased as of June 2018.
19
  A person is considered eligible to receive a pension if he/she meets requirements of the pension plan, even if
he/she is still working and not receiving (entitled to) the pension plan benefits.
20
     Of the 32 beneficiaries SSA correctly exempted, 2 were deceased as of June 2018.



Windfall Elimination Provision Exemptions (A-13-17-34132)                                                           4
coded on his record, but he was eligible for a different WEP exemption. As a result, SSA did not
overpay these two beneficiaries.

However, the Agency improperly exempted 10 beneficiaries from WEP and, as a result,
improperly paid them approximately $338,000. Based on our sample results, we estimate SSA
improperly paid approximately 2,900 beneficiaries $99 million. Further, we estimate SSA will
pay these beneficiaries an additional $110 million over their lifetimes that they would not receive
if the Agency applied WEP.

For example, one beneficiary met the eligibility requirements for a local government pension in
March 1992. 21 In February 2006, the beneficiary began receiving a local government pension
and OASDI benefits. On his claim for Social Security benefits, the beneficiary reported he was
also entitled to a pension based on non-covered work. We found no other WEP exemption
applied. SSA improperly paid the beneficiary approximately $37,000 from February 2006
through June 2018. If SSA does not correct the benefits, we estimate it will pay the beneficiary
an additional $34,975 over his lifetime that he would not receive had the Agency applied WEP.

In another instance, a beneficiary became eligible for a Federal pension in August 1987. In
June 2009, the beneficiary started receiving a pension and OASDI benefits. The beneficiary
informed SSA staff that he was entitled to a pension from work not covered by Social Security.
Further, his name was included in the ASM file SSA received from OPM. However, SSA did
not apply WEP. We found no other WEP exemption applied. SSA improperly paid the
beneficiary approximately $46,000 from June 2009 through June 2018. If SSA does not correct
the benefits, we estimate it will pay the beneficiary an additional $60,180 over his lifetime that
he would not receive had the Agency applied WEP.

We could not determine whether SSA correctly exempted three beneficiaries from WEP. When
the beneficiaries applied for Social Security benefits, the beneficiaries reported they were first
eligible to receive their pensions before January 1, 1986. However, the Agency did not have
evidence of this in its systems. We attempted to obtain information from the pension-paying
agencies. One agency stated a beneficiary was not in its retirement systems; another agency
would not release pension information for a beneficiary; and another agency did not respond to
our request. Therefore, we could not determine whether SSA properly exempted the
beneficiaries from WEP. If SSA exempted these beneficiaries from WEP in error, we estimate
they were paid approximately $122,000 more than they should have been. To determine whether
WEP applies to these three cases, SSA needs to contact the beneficiaries to obtain and confirm
additional information regarding their pensions and then assess whether administrative finality
applies to the initial determinations that resulted in the improper payments.




21
  According to the pension paying agency’s April 2018 pension confirmation letter, the beneficiary met eligibility
requirements for the State pension and was still entitled to, and receiving, the pension.



Windfall Elimination Provision Exemptions (A-13-17-34132)                                                            5
WEP Exemption C: Federal Employment
WEP applies to Federal employees who began Federal employment before 1984, were covered
by the Civil Service Retirement System (CSRS), and did not contribute to Social Security.
However, a beneficiary may be exempt from WEP 22 if he/she was a Federal employee on
January 1, 1984 and first become covered under the Federal Insurance Contribution Act 23 on
January 1, 1984 based on the mandatory coverage provision. 24 Beneficiaries who were rehired
for Federal employment after January 1, 1984 were not automatically exempt from WEP. If any
rehired beneficiary had prior CSRS coverage, they were potentially subject to WEP. In addition,
other CSRS beneficiaries were also potentially subject to WEP if they had prior non-covered
employment.

Of the 50 beneficiaries sampled, SSA correctly exempted from WEP 3 beneficiaries who
received Federal pensions based on work that was not covered by Social Security. 25 Agency
records showed six beneficiaries were not eligible for the WEP exemption coded on their records
but were eligible for a different exemption. Hence, SSA did not overpay these beneficiaries.

However, the Agency improperly exempted 16 beneficiaries from WEP and, as a result,
improperly paid them approximately $436,000. Based on our sample results, we estimate SSA
improperly paid approximately 714 beneficiaries $19 million. Further, we estimate SSA will
improperly pay the beneficiaries an additional $31 million over their lifetimes if the Agency does
not correct the benefits and apply WEP.

For example, one beneficiary was eligible for a Federal pension in December 1988. The
beneficiary began Federal employment before 1983, was covered by CSRS, and did not
contribute to Social Security. In March 2000, the beneficiary began receiving a Federal pension
and OASDI benefits. Information in SSA’s file indicated the beneficiary was entitled to a
Federal pension. Further, the beneficiary was included in OPM’s ASM file. However, SSA did
not apply WEP. We found no other WEP exemption applied. SSA improperly paid the
beneficiary approximately $46,000 from March 2000 through June 2018. In June 2018, SSA
reviewed this case and determined it should have applied WEP. Since SSA determined its
administrative finality 26 rules precluded it from imposing WEP and correcting the benefits, we
estimate SSA will pay the beneficiary an additional $24,560 over her lifetime that she would not
receive had the Agency correctly applied WEP.




22
     SSA, POMS, RS 00605.362, B.1 (November 9, 2017).
23
     This law requires that individuals pay Social Security and Medicare taxes.
24
 SSA’s Center for Disability and Program Support provided regional guidance on CSRS and WEP. The guidance
was updated on March 1, 2019.
25
     SSA correctly exempted three beneficiaries, and one beneficiary was deceased as of June 2018.
26
   Administrative finality is the concept that an Agency determination or decision becomes final and binding when
rendered, unless it is timely appealed or subsequently reopened. See the Administrative Finality section of this
report for more details.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                           6
In another instance, a beneficiary was eligible for a Federal pension in July 2005. In April 2013,
the beneficiary began receiving a Federal pension and OASDI benefits. During the initial
interview for Social Security benefits, the beneficiary indicated she was not entitled, and did not
expect to be entitled, to a pension from work not covered under Social Security. However, in
January 2014, SSA received pension information from OPM that indicated the beneficiary was
entitled to a pension based on non-covered earnings. The beneficiary was improperly paid
approximately $20,000 from April 2013 through June 2018. In June 2018, SSA reviewed this
case and determined it should have applied WEP. Since SSA determined its administrative
finality rules precluded it from imposing WEP and correcting the benefits, we estimate SSA will
pay the beneficiary an additional $54,605 over her lifetime that she would not receive had the
Agency correctly applied WEP.

For the remaining 25 beneficiaries, 27 we could not determine whether the Agency correctly
exempted them from WEP. 28 For these beneficiaries, the Agency’s records identified the
pension-paying agency as either OPM or the Federal, State, or local agency of employment.
When the beneficiaries became entitled to Social Security benefits, SSA’s files indicated they
were receiving pensions based on Federal work covered by Social Security after
December 31, 1983. However, according to the Agency’s Master Earnings File, 29 these
beneficiaries were not Federal employees on January 1, 1984 and were not initially covered by
Social Security on January 1, 1984.

In addition, we reviewed OPM’s ASM Files, 30 which did not include the 25 beneficiaries.
According to SSA guidance on CSRS and WEP, OPM advises that the records it includes in the
files used in the matching operation were those of beneficiaries who were covered under CSRS
and then retired under CSRS.31 If the beneficiary converted to the Federal Employees
Retirement System (FERS) or was hired under FERS then retired under FERS, the beneficiary
would be excluded from OPM’s file. However, a Federal employee who converted from CSRS
to FERS was still potentially subject to WEP, assuming no other exemption was met. Therefore,
these 25 beneficiaries would not have been detected by SSA’s matching operation and were still
potentially subject to WEP. SSA may have improperly paid the 25 beneficiaries approximately
$849,000. To determine whether WEP applies to these 25 cases, SSA needs to contact the
beneficiaries to obtain and confirm additional information regarding their pensions and then
assess whether administrative finality applies to the initial determinations that resulted in the
improper payments.




27
  According to information in SSA’s file, two beneficiaries were receiving State and local pensions and were not
Federal employees.
28
  Of the 25 beneficiaries we found questionable and could not determine whether the WEP exemption was correctly
applied, 4 beneficiaries were deceased as of June 2018.
29
     The Master Earnings File is SSA’s record of all earnings reported by employers.
30
     We reviewed OPM’s ASM file dated 2014 and 2018.
31
     See Footnote 24.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                          7
For example, one beneficiary was not a Federal employee. When the beneficiary became
entitled to Social Security benefits, SSA’s file indicated the beneficiary was entitled to a pension
from work not covered under Social Security. In 1982, the beneficiary had covered Social
Security earnings from a health care organization in Texas and non-covered earnings from a
school district. We found no other WEP exemption applied. In June 2018, SSA reviewed this
case and determined it should have applied WEP; however, the Agency determined its
administrative finality rules precluded it from changing the benefits. As a result, SSA paid the
beneficiary approximately $40,000 from April 2004 through June 2018 that she would not have
received had the Agency applied WEP. In addition, we estimate SSA will pay the beneficiary an
additional $34,391 over her lifetime that she would not receive had the Agency applied WEP.

Administrative Finality
Administrative finality is SSA’s rule that prescribes time limits for when the Agency can reopen
and revise a determination or decision. 32 Generally, if the Agency finds an error longer than
4 years after the date of the initial determination notice, it will not correct the error if the result of
revising the record would be unfavorable to the claimant. 33 However, there are various
situations, such as fraud or similar fault, in which the Agency can reopen a case. 34

Because of SSA’s administrative finality rules, the Agency may not correct the WEP payment
errors for 24 of the 26 beneficiaries we identified. For example, the beneficiaries had informed
the Agency that they were entitled to non-covered Government pensions. According to SSA
policy, if there is information in the file indicating the claimant was entitled to a non-covered
pension when he/she initially became entitled to Social Security benefits, but the adjudicator did
not apply WEP, the Agency will not correct the error after 4 years. 35

However, for the remaining two beneficiaries, SSA may have been able to apply WEP and
recover the related overpayments. For one case, the date of the initial determination notice was
within 4 years. We estimate the Agency improperly paid this beneficiary approximately $3,400.
In the remaining case, the beneficiary indicated she was not entitled, and did not expect to be
entitled, to a pension from work not covered under Social Security. 36




32
     SSA, POMS, GN 04001.001, C (September 9, 2011).
33
     SSA, POMS, GN 04030.100, B.1 (August 7, 2013).
34
     SSA, POMS, GN 04030.100, B.2 (August 7, 2013).
35
     See Footnote 33.
36
  The beneficiary indicated on the application summary for retirement insurance benefits she was not entitled, nor
did she expect to become entitled, to a pension or annuity in whole or in part on work after 1956 not covered by
Social Security.



Windfall Elimination Provision Exemptions (A-13-17-34132)                                                            8
According to SSA policy, 37 if a claimant is receiving a non-covered pension but answers that
he/she is not entitled to a non-covered pension at the interview for Social Security benefits, a
claim should be developed for fraud or similar fault. 38 If the Agency establishes fraud or similar
fault, it can reopen and revise its initial determination from the date the claimant became entitled
to both a non-covered pension and SSA benefits. If SSA cannot establish fraud or similar fault,
it may be able to reopen the case based on good cause. 39 If good cause is established and all the
requirements for reopening the case are met, the Agency can reopen and revise its initial
determination from the date the claimant became entitled to both a non-covered pension and SSA
benefits. Unless the Agency takes corrective action on these two cases, it will pay the
beneficiaries an additional $81,367 over their lifetimes.

In a September 2016 report, we recommended that SSA finalize changes to its administrative
finality policy regarding continued payments of future benefits where administrative finality
prohibits reopening the determination. 40 Additionally, in an August 2018 report, we
recommended that SSA decide whether it should revise its rules on administrative finality to
allow for the correction of WEP and Government Pension Offset overpayments for the
populations identified by our audits. 41 The Agency agreed with our recommendations and
reported it was finalizing changes to the administrative finality policies and procedures.
However, as of April 2019, the Agency had not changed its policies and procedures.

Because of the Agency’s administrative finality policies at the time of our review, SSA did not
correct all the payment errors we identified. As a result, we estimate the Agency will pay
beneficiaries an additional $140 million in future benefits that they would not be entitled to
receive had SSA applied WEP.




37
     See Footnote 34.
38
  Fraud exists when a person, with intent to defraud, either (1) makes, or causes to be made, a false statement or
misrepresentation of a material fact for use in determining rights to Social Security benefits or (2) conceals, or fails
to disclose, a material fact for use in determining rights to Social Security benefits. Similar fault exists when a
person either (1) knowingly makes an incorrect or incomplete statement that is material to the determination or
(2) knowingly conceals information that is material to the determination.
39
  Good cause exists if there is a clerical error, error on the face of the evidence, or new and material evidence. SSA
can reopen the case within 4 years of the date of the notice of the initial determination for good cause. SSA, POMS,
GN 04010.001, A.1 (September 9, 2011).
40
   SSA OIG, Old-Age, Survivors and Disability Insurance Benefits Affected by Federal Pensions, A-13-16-23006,
p. 7 (September 2016).
41
 SSA OIG, Follow-up: Dually Entitled Beneficiaries Who Are Subject to the Windfall Elimination Provision and
Government Pension Offset, A-09-17-50252, p. 9 (August 2018).


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                                  9
CONCLUSIONS
SSA needs to improve its processes for ensuring OASDI benefits are correctly exempted from
WEP. Our review of 150 beneficiaries found SSA paid 26 beneficiaries approximately
$774,000 in improper payments because the Agency did not correctly apply WEP. As a result,
we estimate SSA improperly paid approximately 3,600 beneficiaries $118 million. Further, we
estimate SSA will pay the beneficiaries an additional $140 million over their lifetimes that they
would not be entitled to receive had SSA applied WEP.

RECOMMENDATIONS
We recommend SSA:

1. Collect overpayments or determine if administrative finality policies apply to the
   determinations made for the 26 beneficiaries identified during this review.

2. Determine whether the WEP determinations made for the 28 beneficiaries we identified as
   questionable are eligible for the WEP exemptions recorded in the Agency’s information
   system, or are eligible for other WEP exemptions.

3. Instruct staff to review policies and procedures related to pension eligibility before
   January 1, 1986 and Federal employees under the mandatory coverage provision before
   applying a WEP exemption.

4. Finalize changes to its administrative finality policy regarding whether the Agency should
   continue to pay prospective benefits even where administrative finality currently prohibits
   reopening the determination.

AGENCY COMMENTS
SSA agreed with our recommendations. The Agency’s comments are included in Appendix E.




                                                  Rona Lawson
                                                  Assistant Inspector General for Audit




Windfall Elimination Provision Exemptions (A-13-17-34132)                                        10
                                       APPENDICES




Windfall Elimination Provision Exemptions (A-13-17-34132)
                          – WINDFALL ELIMINATION PROVISION
The Social Security Amendments of 1983 (Pub. L. No. 98-21) include the windfall elimination
provision (WEP), which eliminates windfall benefits for retired and disabled workers receiving
pension benefits based on employment earnings not covered by Social Security. 1 Under WEP,
the Social Security Administration (SSA) uses a modified benefit formula to determine a wage
earner’s monthly Social Security benefit. WEP does not apply until the entitlement 2 to a non-
covered pension begins. SSA receives, from the applicant, entitlement information related to
current or future pensions from employment not covered by Social Security. However, for
retired Federal employees, SSA receives monthly pension alerts from the Office of Personnel
Management.

Under certain conditions, a WEP exemption may apply. If WEP does not apply, SSA employees
must record the exemption on the Master Beneficiary Record. Using the beneficiary’s pension
information, the Agency codes the record with an exemption (see Table A–1).

                         Table A–1: Windfall Elimination Provision Exemptions 3
      Code                                                  Description
        A      Workers who have 30 or more years of coverage
        B      A worker was eligible to receive a non-covered pension before 1986 4
               Federal workers who were performing services on January 1, 1984 and became newly covered by
        C
               Social Security on January 1, 1984 under the mandatory coverage provision in Pub. L. No. 98-21 5
        D      Employees of nonprofit organizations mandatorily covered by Social Security as of January 1, 1984
        E      Pensions based on earnings under the Railroad Retirement Act 6
        F      Pensions based solely on domestic or foreign pre-1957 non-covered employment
        G      Pensions based wholly on U.S. uniformed services 7
        H      Administrative Finality
        I      Other
        J      Special Minimum Primary Insurance Amount
        K      Subsequent Disability Insurance Benefit Guarantee Primary Insurance Amount




1
    WEP also applies to some fully insured beneficiaries who receive certain foreign pensions.
2
    The beneficiary has applied for benefits and has proven his or her rights to benefits for a given period of time.
3
    SSA, POMS, RS 00605.362 (November 9, 2017) and SSA, POMS, RS 00605.374, B.1 (August 7, 2013).
4
    A beneficiary is considered eligible when he/she meets all the requirements for the pension.
5
 Federal workers hired before January 1, 1984 who later transferred to the Federal Employees Retirement System
are potentially subject to WEP.
6
    Railroad Retirement Act, Pub. L. No. 93-445, § 1, 88 Stat. 1305, pp. 1306-1362 (October 16, 1974).
7
    This change was effective January 1995.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                               A-1
                     – SCOPE AND METHODOLOGY
To accomplish our objective, we:

   Obtained and reviewed applicable Federal laws and regulations and Social Security
    Administration (SSA) policies and procedures.

   Reviewed prior Office of the Inspector General reports pertaining to the Windfall
    Elimination Provision (WEP).

   Identified SSA’s ongoing and planned initiatives to improve payment accuracy for WEP.

   Interviewed SSA employees from the Offices of Operations and Retirement and Disability
    Policy.

   Obtained and analyzed an electronic data extract from SSA’s Master Beneficiary Record and
    Master Earnings File as well as the Disability, Railroad, Alien Deportation and Military
    Service file. See Appendix C for detailed information.

   Grouped extracted data into three separate WEP exemption categories. Selected 3 samples of
    50 beneficiaries each, from (1) WEP Exemption A, (2) WEP Exemption B, and (3) WEP
    Exemption C. For the sampled cases, we reviewed queries from SSA’s Master Beneficiary
    Record, Informational/Certified Earnings Records System, Master Earnings File, Modernized
    Claims System, Paperless System, Shared Process System, and Claims File User Interface to
    determine the applicability of WEP and calculate the related overpayment.

   Mailed pension confirmation letters to obtain non-covered employment information from
    Federal, State, or local government agencies. The letters requested that employers provide
    information about beneficiaries receiving pensions from wages not covered by Social
    Security.

   Obtained and reviewed the Office of Personnel Management’s Annuity and Survivors Master
    file.

   Requested SSA review those instances where it appeared WEP should have applied.

   Estimated the future overpayments using SSA’s WEP Online Calculator.

   Estimated future overpayments using the life tables in the Department of Health and Human
    Services, Centers for Disease Control and Prevention, National Vital Statistics Report.

We conducted our review from November 2016 to May 2017 and February to November 2018 at
SSA Headquarters in Baltimore, Maryland. The principal entity audited was the Office of the
Deputy Commissioner for Operations.




Windfall Elimination Provision Exemptions (A-13-17-34132)                                    B-1
We determined the computer-processed data used for this audit were sufficiently reliable to meet
our audit objective. Further, any data limitations were minor in the context of this assignment,
and the use of the data should not lead to an incorrect or unintentional conclusion.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for findings and conclusions based
on our audit objectives. We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.




Windfall Elimination Provision Exemptions (A-13-17-34132)                                     B-2
                       – SAMPLING METHODOLOGY AND RESULTS
We obtained an electronic data extract of information from the Social Security Administration’s
Master Beneficiary Record (MBR) 1 and Master Earnings File as well as the Disability, Railroad,
Alien Deportation and Military Service file as of July 2016. The data extract consisted of
beneficiaries who were exempt from the Windfall Elimination Provision (WEP). Our review
focused on cases coded as (a) workers who had 30 or more years of coverage subject to Social
Security earnings (WEP Exemption A), (b) workers who were eligible for a pension before 1986
(WEP Exemption B), and (c) Federal employees under the mandatory coverage provision (WEP
Exemption C).

We refined the file by applying additional screening criteria to identify beneficiaries who had a
higher risk of ineligibility for the exemption given. For example, we applied screening criteria
against the Master Earnings File and Disability, Railroad, Alien Deportation and Military Service
file to identify (1) beneficiaries who had fewer than 30 years of Federal Insurance Contributions
Act coverage but were given WEP Exemption A and (2) Federal employees who had non-
Federal Insurance Contributions Act/Medicare Qualified Government Employment earnings but
who were given WEP Exemption C. In addition, we screened beneficiaries against the MBR to
identify individuals whose age may indicate they were too young to be eligible for a government
pension before 1986 but who were given WEP Exemption B.

In addition, we excluded from each exemption code

   beneficiaries in non-payment status,
   deceased beneficiaries as of July 2016,
   beneficiaries no longer receiving WEP, and
    beneficiaries from the State of Louisiana.

After applying the screening requirements, we identified 31,733 beneficiaries who were
receiving Old-Age, Survivors and Disability Insurance (OASDI) benefits and exempted from
WEP. We selected 3 random samples of 50 beneficiaries each from WEP Exemptions A, B, and
C to determine whether SSA correctly exempted OASDI benefits from WEP and calculated any
related improper payments.




1
 The electronic data extract comes from all 20 segments of SSA’s MBR. The MBR comprises 20 specific
groupings of records called “segments.”
2
  We removed all WEP exemption cases with beneficiaries residing in the State of Louisiana from our population.
The Louisiana Act of 1985 (Act No. 154) granted early retirement eligibility of members with at least 10 years as of
September 1, 1985. Members of 13 Louisiana Public Retirement Systems, regardless of age, are able to retire in
10 years. This legislative change caused a high number of cases from the State of Louisiana to appear in our data
extract and would have impacted our sampling efforts. The removal of these cases normalized and accurately
reflected the potential finding rate in all the other states.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                        C-1
The following tables provide the details of our populations and samples.

                   Table C–1: WEP Exemption A Population and Sample Size
                                    Description                               Number
                                     Population                                 14,897
                                    Sample Size                                     50

                   Table C–2: WEP Exemption B Population and Sample Size
                                    Description                               Number
                                     Population                                14,606
                                    Sample Size                                    50

Our review determined SSA improperly paid approximately $338,000 in OASDI benefits to
10 beneficiaries. Projecting our sample results to the population (WEP Exemption B), we
estimate approximately 2,900 beneficiaries were improperly paid approximately $99 million
because SSA incorrectly exempted OASDI benefits from WEP. Further, an additional
$110 million in improper payments could accrue over the beneficiaries’ lifetimes if SSA does not
take correction action.

  Table C–3: Number of OASDI Beneficiaries Who Should Have WEP Applied–Frame 2
                             Description                                           Number
                            Sample Results                                              10
                            Point Estimate                                           2,921
                        Projection Lower Limit                                       1,649
                        Projection Upper Limit                                       4,606
Note:   All statistical projections are at the 90-percent confidence level.

             Table C–4: Amount of OASDI Benefits Not Offset for WEP–Frame 2
                            Description                                            Amount
                           Sample Results                                             $337,770
                           Point Estimate                                          $98,669,372
                       Projection Lower Limit                                      $49,523,433
                       Projection Upper Limit                                     $147,815,311
Note:   All statistical projections are at the 90-percent confidence level.




Windfall Elimination Provision Exemptions (A-13-17-34132)                                        C-2
        Table C–5: Amount of OASDI Benefits that Will be Paid in the Future if WEP
                               is Not Applied–Frame 2
                            Description                                                Amount
                           Sample Results                                                 $376,297
                           Point Estimate                                             $109,923,880
                       Projection Lower Limit                                          $54,023,521
                       Projection Upper Limit                                         $165,824,238
Note:   All statistical projections are at the 90-percent confidence level.

                   Table C–6: WEP Exemption C Population and Sample Size
                               Description                                            Numbers
                                Population                                             2,230
                               Sample Size                                               50

Our review determined SSA improperly paid approximately $436,000 in OASDI benefits to
16 beneficiaries. Projecting our sample results to the population (C), we estimate approximately
700 beneficiaries were improperly paid approximately $19 million because SSA incorrectly
exempted OASDI benefits from WEP. Further, an additional $31 million in improper payments
could accrue over the beneficiaries’ lifetimes if SSA does not take correction action.

    Table C–7: Number of OASDI Beneficiaries Who Should Have WEP Applied–Frame 3
                             Description                                               Amount
                            Sample Results                                               16
                            Point Estimate                                              714
                        Projection Lower Limit                                          476
                        Projection Upper Limit                                          988
Note:   All statistical projections are at the 90-percent confidence level.

             Table C–8: Amount of OASDI Benefits Not Offset for WEP–Frame 3
                            Description                                                Amount
                           Sample Results                                             $436,478 3
                           Point Estimate                                            $19,466,919
                       Projection Lower Limit                                        $11,435,337
                       Projection Upper Limit                                        $27,498,500
Note:   All statistical projections are at the 90-percent confidence level.




3
 Of the 16 beneficiaries identified with WEP exemption C, 15 had a dollar impact. Although SSA did not apply
WEP, for the remaining beneficiary, the amount of OASDI benefits paid did not result in an overpayment.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                                      C-3
          Table C–9: Amount of OASDI Benefits that Will be Paid in the Future if WEP
                                 is Not Applied–Frame 3
                               Description                                        Amount
                              Sample Results                                     $684,927 4
                              Point Estimate                                     30,547,744
                          Projection Lower Limit                                 18,606,807
                          Projection Upper Limit                                 42,488,682
Note:      All statistical projections are at the 90-percent confidence level.




4
    See Footnote 3.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                     C-4
                     – WINDFALL ELIMINATION PROVISION
                       EXEMPTION A
We identified 33 beneficiaries who did not have substantial Social Security earnings, but the
Social Security Administration (SSA) recorded a Windfall Elimination Provision (WEP)
Exemption A on the beneficiary’s Master Beneficiary Record (MBR).

Earnings information posted on the Agency’s Master Earnings File indicate these beneficiaries
had fewer than 30 years of substantial Social Security earnings. In addition, information in
SSA’s file and based on the beneficiary’s own acknowledgment indicate they were not entitled to
a non-covered pension.

On March 31, 2017, we discussed 15 of the 33 cases with technical experts from SSA’s Office of
Public Service and Operations Support under the Office of the Deputy Commissioner for
Operations. Agency staff agreed beneficiaries (1) did not meet the requirements for a WEP
exemption based on substantial Social Security earnings and (2) based on information recorded
in Agency’s systems, were not entitled to a non-covered pension. Agency staff was unable to
provide a definite reason why the WEP exemption was present on the MBR but did state
representatives may have added the exemption manually.

On July 19, 2018, we forwarded all 33 cases to SSA for additional review to determine why
Agency staff applied a WEP exemption when beneficiaries had limited Social Security earnings
and no indication of a non-covered pension. Agency staff further confirmed that based on the
Master Earnings File, none of the beneficiaries had substantial Social Security earnings, there
was no indication beneficiaries were entitled to or receiving non-covered pensions before
January 1, 1986, nor were they Federal employees. Additionally, employees stated they could
not conclude on these beneficiaries because of conflicting information or lack of information in
SSA’s systems.

Since these individuals had limited Social Security earnings and there was no indication that
beneficiaries received a non-covered pension, there were no Old-Age, Survivors and Disability
Insurance benefits for SSA to reduce. Thus, these 33 beneficiaries did not have overpayments.
Hence, we believe SSA inaccurately recorded a WEP exemption on the beneficiaries’ MBR.




Windfall Elimination Provision Exemptions (A-13-17-34132)                                       D-1
                                – AGENCY COMMENTS




                                            SOCIAL SECURITY

MEMORANDUM


Date:      July 30, 2019                                                            Refer To:   S1J-3

To:        Gail S. Ennis
           Inspector General

From:      Stephanie Hall
           Acting Deputy Chief of Staff

Subject:   Office of the Inspector General Draft Report “Windfall Elimination Provision Exemptions”
           (A-13-17-34132) -- INFORMATION

           Thank you for the opportunity to review the draft report. Please see our attached comments.

           Please let me know if we can be of further assistance. You may direct staff inquiries to
           Trae Sommer at (410) 965-9102.



                                                           Sincerely,



                                                           Stephanie Hall
                                                           Acting Deputy Chief of Staff




           Windfall Elimination Provision Exemptions (A-13-17-34132)                                     E-1
SSA COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL DRAFT
REPORT, "WINDFALL ELIMINATION PROVISION EXEMPTIONS" (A-13-17-34132)


GENERAL COMMENTS

One of our key focuses is to address improper payments in the Windfall Elimination Provision
(WEP) program. We continue to improve efficiency, and implement automation and process
improvements. At the end of fiscal year 2018, we released new system enhancements to
improve the processing of WEP cases. For example, we automated lump sum benefit
calculations to reduce human error and created alerts to technicians to ensure they considered
WEP in an initial computation. Additionally, we continue to review and update WEP policy
instructions for clarity and focus on areas that are error prone, such as exemptions to the
WEP. Finally, we are continuing our review of our rules of administrative finality, and obtaining
data to support any potential changes.

Our response to the recommendations are below.

Recommendation 1

We recommend SSA collect overpayments or determine if administrative finality policies apply
to the determinations made for the 26 beneficiaries identified during this review.

Response

We agree.

Recommendation 2

We recommend SSA determine whether the WEP determinations made for the 28 beneficiaries
we identified as questionable are eligible for the WEP exemptions recorded in the Agency’s
information system, or are eligible for other WEP exemptions.

Response

We agree.

Recommendation 3

We recommend SSA instruct staff to review policies and procedures related to pension eligibility
before January 1, 1986 and Federal employees under the mandatory coverage provision before
applying a WEP exemption.

Response

We agree.


Windfall Elimination Provision Exemptions (A-13-17-34132)                                     E-2
Recommendation 4

We recommend SSA finalize changes to its administrative finality policy regarding whether the
Agency should continue to pay prospective benefits even where administrative finality currently
prohibits reopening the determination.

Response

We agree.




Windfall Elimination Provision Exemptions (A-13-17-34132)                                    E-3
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