The Social Security Fairness Act

By Anne Christopulos

Many state and local employees received a long-desired gift this holiday season—the Social Security Fairness Act, which repealed the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These rules reduced or, in some cases, eliminated Social Security benefits for nearly three million public sector employees. For many years, public employees in affected states had been seeking reform or repeal of these rules, which were enacted in 1983. The Act passed easily in both the House and the Senate. 

Full repeal took even the staunchest advocates by surprise. This is what Mass Retirees CEO Shawn Duhamel said in 2023: “It’s clear that full repeal of WEP and GPO is, at best, a long shot…However, there remains an opening for reform of both WEP and GPO. Even the most fiscally conservative watchdogs agree that the current WEP and GPO formulas are flawed and need to change.”

The rationale for WEP had been to prevent retirees who were eligible for both public pensions and Social Security benefits from taking advantage of the progressivity of Social Security benefit calculations, which replace a higher percentage of career earnings for low-income recipients than for higher-income recipients. Typically for public employees who also worked enough at other jobs to qualify for Social Security, their lifetime earnings from those other jobs were at a level that made them look like lower-income workers, thus resulting in a higher wage replacement rate on those earnings. Under the WEP, a lower replacement rate was applied instead.

While the WEP applied to a government employee’s own work record, the GPO affected a government worker whose spouse earned Social Security benefits. It reduced the spousal benefit by two-thirds of the amount of their government pension and sometimes eliminated it altogether. The rationale for the GPO was that spousal Social Security benefits were designed to  provide income to dependent or low-earning spouses, not to a spouse with substantial earnings in their own right.

Those arguing for repeal have said that the public pension and Social Security systems are separate and one should not influence the other. Another argument has been that retirees have often been taken by surprise and were not prepared for the reduction or loss of their Social Security benefits. Those who were more focused on reform than on repeal believed that the “fix” was too severe. Also, some pointed to the unfairness in the federal tax code, which fully taxes public pensions while Social Security benefits are not fully taxed, and for many, not taxed at all. Opponents of repeal have been worried primarily about its impact on the health of the Social Security system.

The Congressional Budget Office estimates that WEP repeal will increase average monthly benefits by about $360 per month and that GPO repeal will increase monthly benefits by an average of $700 for recipients with a living spouse and $1,190 for a surviving spouse. The effective date is December 2023, so there will be a one-time back payment for 2024. The repeal is expected to move up the date of exhaustion of the Social Security Trust Fund by six months, although payments into the system by current workers are expected to still provide 75%-80% of promised benefits.

If you have any questions about Social Security, please reach out any time. (413) 256-1225 x2 or info@westbranchcapital.com

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