Social security totalization and the Windfall Elimination Provision

This blog entry is a spin-off from post comments earlier this week. I really want to talk about Japanese visa pitfalls, but I’m getting responses that go to something called “social security totalization”, and an obscure rule called the Windfall Elimination Provision.

So this is my good deed for the day.

The United States made a treaty with Japan, which was effective five years ago this week: October 1, 2005. In it, America promises to credit the Japanese who work in America short-term and pay into our social security for the years that the Japanese also pay into their nenkin system.

So, for example, if someone had paid 20 years into Japanese nenkin and five years into U.S. social security, the Social Security Administration would send the Japanese a fractional social security check for the five years, even though the individual does not have the requisite 40 credits (40 quarters), which is 10 years of coverage. Uncle Sam will count five of the Japanese years.

What happens on this side (Japan side) is that Japan will credit the years of participation in the U.S. Social Security system toward vesting in the Japanese kokumin nenkin (kousei nenkin, etc.) You need 25 years total.

A reader asks if it is better to try to get a full 10 years of U.S. social security AND 25 years in the Japanese nenkin–either by actual payments or by a special rule available to permanent residents called kara kikan.

I say the answer is: no. Based on current law, you always want to qualify by treaty. This is because of something called the Windfall Elimination Provision.

As the social security commentary says:

CLICK TO ENLARGE.

As Reader Chuckers quotes the Social Security site:

“If you qualify for Social Security benefits from both the United States and Japan and you did not need the agreement to qualify for either benefit, the amount of your U.S. benefit may be reduced [by WEP].”

Windfall Elimination Provision (WEP) is its own can of worms. It basically takes away all or part of the benefit in the “90% bend point”. If you study how U.S. social security works, you learn that lower average earnings are accorded more weight in determining your social security check. This is so that someone earning minimum wage all their lives can get a retirement check that’s at least, say $660; but practically, it’s a big giveaway from the Northeast to the states of the South and the square states of the Far West. Because we all have this subsidy incorporated into our social security. Your first $300,000 of “covered earnings” is creating this nice $660 check. It takes much more than $300,000 to get another $660. (I think it takes another $850,000 in fact.)

Because someone went bragging in the 1970’s about how they could get a $200 social security check (which was like $660 today), plus their military pension or some state pension where they didn’t have to pay social security taxes, Congress threw in WEP. It creates its own injustices, but it’s there.

So lesson is: you avoid Windfall Elimination Provision.

Now, this is not the most hit blog of Tokyo, or even Japan. But it does get a lot of hits on this issue. I’m saying maybe several hundred or a thousand over a year. It may the same 30 people for all I know. And here I am sitting here, wondering . . . how the career is going to go, you know. So that said, I’m telling you, you always want to qualify with the treaty. WEP is bad. You don’t want that.

I know the treaty could go away in the future, because Japan is breaking it as it usually does treaties. But the chances are if that happened, Congress would cover Americans who relied on the treaty with the money it would no longer have to pay the short-term Japanese. There are many more of them than us, so there’s plenty of money to make us whole. It wouldn’t simply be that Japan screws us nenkin payers, and the short-term Japanese get to keep their social security, although that would be par for the course with some of the whoring that “Pacific Elite” Americans do.

If you don’t trust the treaty, then you do what you have to do. My own feeling is, though, that you never want to do something that puts you in WEP unless you are netting a lot more pension money from whatever pension you would collect. Net-net, it might work out for you. But practically, no.

Let me stop here except to point out that my rates are reasonable!