The Social Security Fairness Act
On January 5, 2025, President Biden signed Social Security Fairness Act into law, effectively repealing the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). This is huge for many current and future retirees. These provisions had previously reduced or eliminated Social Security benefits for individuals receiving pensions from employment not covered by Social Security, such as CalSTRS and other public pensions. While implementation is still in question, the long term impacts of the Social Security Fairness Act could be massive for many of our clients.
What was WEP?
The WEP or Windfall Elimination Provision, enacted in 1983, adjusted the Social Security benefit formula for individuals who also received pensions from non-Social Security-covered employment, often leading to reduced benefits. This was sometimes referred to as the “double dipping rule” For those that had less than 20 years of contributing to Social Security, they were subject to the maximum Windfall Elimination Provision penalty which was over $500/month. For those that had 20-30 years of contributing to Social Security, they were subject to a smaller penalty. For those with over 30 years of contributing to Social Security, there was no penalty.
What was GPO?
The GPO or Government Pension Offset, established in 1977, reduced spousal or survivor Social Security benefits for those with government pensions from non-covered employment. These provisions affected over 3.2 million public servants, including teachers, firefighters, police officers, and some federal employees. Essentially, they took two thirds of your public pension benefit and deducted that from your spousal or survivor Social Security benefit. This left most affected people with no spousal or survivor benefit whatsoever.
How will this impact you?
The repeal of WEP and GPO is set to increase Social Security benefits for the affected individuals. The Social Security Administration (SSA) is currently finalizing its implementation plan and has indicated that benefits payable for January 2024 and later will reflect the repeal. Beneficiaries may receive retroactive payments dating back to January 2024. The exact increase in monthly benefits will vary, with some individuals seeing substantial gains, potentially over $1,000 per month, depending on factors like the type of benefit and pension amount.
For current retirees, this could make for a much more comfortable retirement. For those not retired yet, this will certainly impact your retirement plan. You might be able to retire earlier or live larger in retirement. I recommend getting in touch with your advisor to see how this will affect your specific plan.
What should you do next?
The SSA advises individuals who were previously deterred from applying for spousal or survivor benefits due to the GPO to consider filing applications promptly, as the application date can influence benefit commencement. Those already receiving benefits reduced by WEP or GPO should ensure their contact and direct deposit information with the SSA is current to facilitate timely adjustments.
While the repeal addresses long-standing concerns about benefit reductions for public servants, it also raises questions about the financial implications for the Social Security Trust Funds. Critics caution that the increased payouts could accelerate the depletion of these funds, which are already projected to face insolvency challenges in the coming years. The Congressional Budget Office estimates that the changes will raise monthly benefits by $360 to over $1,190 for affected recipients by December 2025.
Regardless, those previously affected by these provisions should be proactive to make sure they are getting the most out of their Social Security benefits.
Contact Social Security for more information here: https://www.ssa.gov/myaccount/
Schedule a meeting with your financial planner to review personal implications here: https://toriandalex.ceterainvestors.com/schedule-a-consultation
Sources:
- https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
- https://www.missionsq.org/about-us/news-and-updates/media-inquiries/news-20250108-socialsecurityfairnessactrepealingwepgpobecomeslaw.html
- https://mtrs.state.ma.us/senate-votes-to-fully-repeal-wep-gpo/