This calculation method adjusts Social Security benefits for individuals who also receive income from a pension based on employment where Social Security taxes were not withheld. It modifies the standard formula used to determine primary insurance amounts to account for this non-covered employment, potentially resulting in a lower Social Security benefit than might otherwise be expected. For example, a retired teacher who receives a state pension and is also entitled to Social Security benefits based on other employment will likely have their Social Security payment reduced due to this provision.
The purpose of this adjustment is to prevent individuals from receiving disproportionately high Social Security benefits relative to their lifetime earnings covered by Social Security. It aims to ensure fairness within the Social Security system by preventing individuals with significant earnings from non-covered employment from using a standard benefit formula designed for those with a long history of covered employment. Its implementation reflects a historical concern about the equity of benefit distribution and the long-term solvency of the Social Security trust fund.
