In a historic move, the Social Security Fairness Act has become law, marking a transformative shift in how those with pensions across the United States access their Social Security benefits. For decades, provisions like the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) have drawn criticism. With the repeal of these provisions, we’ll take a look at what these changes can mean for individuals that receive a pension and are eligible for Social Security benefits as well.
Understanding the Social Security Fairness Act
At its core, the Social Security Fairness Act aims to eliminate certain provisions that impacted those who have contributed to alternative pension systems such as teachers, firefighters, police officers, and other state and local government employees. The now-repealed WEP and GPO provisions in many cases had the potential to significantly reduce or even eliminate individual, spousal, or survivor Social Security benefits.
The Windfall Elimination Provision (WEP)
The WEP was introduced in 1983 as part of broader Social Security reforms. Its intent was to prevent “double-dipping”—receiving both a pension and full Social Security benefits.
Under the WEP, employees who worked in jobs not covered by Social Security—but who also held other jobs where they paid into Social Security—could have seen their benefits significantly reduced. The formula used to calculate these reductions was widely criticized for being opaque and overly punitive.
For example, a teacher who spent years in a state-run pension system but also worked part-time jobs covered by Social Security often found themselves penalized. Their Social Security benefits were calculated under an alternate formula that likely reduced their payouts.
The Government Pension Offset (GPO)
The GPO affected Social Security spousal or survivor benefits. Individuals who received a pension saw their Social Security spousal or survivor benefits reduced by an amount equal to two-thirds of their pension.
Under the GPO, Social Security spousal or survivor benefits were drastically reduced or could even be totally eliminated. The original intent of the GPO was to try and mirror what happens in a similar situation when benefits are calculated on Social Security alone, without a pension involved, but this was not well communicated and often an unwelcome surprise to those affected.
What’s Next? Navigating the Transition
For public workers and retirees affected by WEP and GPO, the repeal could significantly impact their retirement planning. Transitioning to the new system will require time and planning, but here’s what to expect:
- Immediate Adjustments: The Social Security Administration is tasked with recalculating benefits for affected individuals. This process may take several months, and it’s still unknown when the increased benefits will begin to be received.
- Retroactive Payments: The Act calls for retroactive adjustments on benefits back to January 2024. We continue to await information on whether a lump sum will be received or if this will be a monthly adjustment to make up for the past benefits owed.
- Outreach and Education: We will be working with our clients as more information becomes available to walk them through any changes they need to be aware of. We’re watching for steps that may need to be taken such as if there will be a need to apply for retroactive payments, if this will be handled automatically, if those that would have not been eligible under the old rules but are eligible now have to take any additional action, etc.
Conclusion
The Social Security Fairness Act could significantly increase retirement income for those recipients that had their Social Security benefit reduced or eliminated by the WEP and/or GPO provisions. For many, this change will impact retirement planning and could lead to the ability to retire earlier than planned, increase income for those already retired, or provide more than anticipated when survivor benefits would be available in the future.
Regardless the situation, if you are collecting a pension or will be in the future, it’s a great opportunity to check in with your advisor to discuss how these changes may impact you.
Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.
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