Social Security Fairness Act: Increased benefits for millions of public sector employees.
The Social Security Fairness Act, signed by Joe Biden on January 5, 2025, will bring significant benefits to millions of public workers across the United States. This act targets two specific provisions that have been criticized for penalizing certain groups of employees: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
According to the Congressional Budget Office the Social Security of more than 2.8 million WEP recipients will increase by an average of $360 a month. Also, spouses affected by the GPO are expected to receive an average increase of $700 per month. Those receiving a widow or widower benefit could receive an average increase of $1,190 per month. (1)
Understanding the Windfall Elimination Provision (WEP)
The WEP reduces the Social Security benefits of individuals who have earned a pension from employment not covered by Social Security, such as many “old system or CSRS” Federal Employees and other public sector jobs. This provision often results in lower-than-expected benefits for retirees who have also contributed to Social Security through other employment. Critics argued that the WEP disproportionately affects teachers, firefighters, police officers, and other public servants who dedicate their careers to serving the community.
Examining the Government Pension Offset (GPO)
The GPO affects the Social Security spousal or survivor benefits that a retired public employee can receive. Specifically, it reduces these benefits by an amount equal to two-thirds of the individual’s government pension. This reduction often results in significantly diminished or even entirely eliminating spousal benefits, impacting many retired public workers.
Benefits of the Social Security Fairness Act
The Social Security Fairness Act repeals both the WEP and the GPO, thereby restoring full Social Security benefits to affected public workers. The potential benefits of this repeal are substantial:
- Increased Retirement Income: By eliminating the WEP, retired public workers will receive the full Social Security benefits they have earned through other covered employment, leading to more income in retirement.
- Equitable Treatment: The repeal of the GPO will ensure that public sector retirees are treated equitably in comparison to private-sector workers, allowing them to receive spousal and survivor benefits without reductions.
. Impact on Social Security Solvency:
- Higher Outlays: Repealing WEP and GPO will lead to higher Social Security expenditures, as more people will receive full benefits. This will accelerate the depletion of the Social Security Trust Fund unless offset by other revenue or cost-saving measures.
- Short-Term Costs: The immediate fiscal impact will be an increase in payouts, contributing to a faster drawdown of the Trust Fund reserves that is facing insolvency as early as the mid-2030’s.
- Long-Term Solvency: Without additional reforms the long-term solvency of the Social Security system could be jeopardized. The exact impact would depend on how many additional beneficiaries qualify for higher benefits and the overall financial condition of the system.
Possible Funding Adjustments: To mitigate the impact on solvency, policymakers might consider complementary measures such as increasing payroll tax contributions, adjusting the income cap on taxable wages, or modifying other aspects of the benefit formulas.
In summary, while the Social Security Fairness Act purpose is to address specific fairness issues, its implications on the solvency of the Social Security system are significant, necessitating careful consideration of compensatory measures to ensure the system’s long-term financial health.
The new law mandates the higher Social Security payments retroactive back to January 2024. It is currently unclear how the new changes will be implemented or if individuals will need to take any additional action.
(1) https://www.newsweek.com/biden-signs-social-security-fairness-act-higher-payments-2010012
Written by: John Stohlman, MS, CFP, CLU, ChFC, ChFEBC, CEP
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