Q & A
Ask Rusty – Will my Canadian pension affect my U.S. Social Security?
Dear Rusty: I worked for 15 years in Canada and for 20 years in the USA and I live in the USA. I will get Social Security from the US soon and I suspect that I can get a smaller (20% of US) pension from Canada as well. Does the US claw back (all or part) of a Canadian pension from the US pension amount? Is it possible it’s a net loss to apply for Canadian pension? Signed: Dually Entitled
Dear Dually Entitled: The United States and Canada have a bilateral agreement which regulates benefits for people who have worked part of their career in both countries and are eligible for benefits from both. Under this agreement, your Canadian Pension Plan (CPP) benefit, earned independently in Canada, will affect your U.S. Social Security (SS) benefit amount based upon a rule in U.S. Social Security regulations known as the Windfall Elimination Provision (or “WEP”). WEP will not take effect until you start your Canadian pension but will then affect your U.S. Social Security benefit by using a special formula to compute (or re-compute) your U.S. benefit amount. Your U.S. Social Security benefit amount will be based upon your “average indexed monthly earnings” (or “AIME”), which is the inflation-adjusted monthly average for your years of lifetime significant earnings in the U.S. The AIME actually uses 35 years of lifetime earnings, and if you don’t have a full 35 years of U.S. earnings they add in zeros to make it 35 years. To compute your SS benefit, your AIME is broken into three parts, each of which are multiplied by a different percentage to arrive at an amount which will become part of your “primary insurance amount” (or “PIA” which is the amount you get at your full retirement age). If you have 20 years or less of significant U.S. earnings, the WEP formula will take 40% of first part of your AIME as the first of three numbers which will be added together to arrive at your U.S. Social Security benefit (without WEP, the normal formula uses a 90% multiplier). What that would mean, if you first become eligible for U.S. Social Security in 2019, is that the first $926 of your AIME, rather than adding $833 to your SS benefit amount, would instead add $370 (a reduction of $463; thus, your total U.S. Social Security benefit amount would be reduced by $463). But there are some additional things you should be aware of:
- WEP cannot reduced your U.S. benefit amount by more than 1/2 of your Canadian CPP/QPP benefit amount.
- WEP cannot and will not eliminate your U.S. SS benefit.
- If you have more than 20 years of significant U.S. earnings, the 40% multiplier increases by 5% per additional year, which would mean a smaller WEP reduction. The WEP provision does not apply to anyone with 30 or more years of significant Social Security earnings.
Regarding the interaction between your Canadian and U.S. benefits, you may find the information at this link helpful:
https://www.ssa.gov/international/Agreement_Pamphlets/documents/Canada.pdf
Scroll to Page 10 in the document at the above link and read the paragraph titled “A CPP/QPP pension may affect your U.S. benefit.” Please be aware too that you can apply for your Canadian Pension Plan benefits by visiting any U.S. Social Security office and filing form CDN-USA-1.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.