With bipartisan support, the Senate and House recently passed legislation, the Social Security Fairness Act, that will restore full Social Security benefits to public sector retirees who have been affected by two Social Security Administration’s (SSA) benefit offset programs called the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).  

The WEP and the GPO were added to the Social Security Act in 1977 and 1983 to prevent “double dipping” on Social Security benefits by workers who were otherwise eligible to receive some benefit from Social Security but who were also receiving non-covered public pension benefits from their own work or the work of a spouse or ex-spouse.  A non-covered pension benefit is a pension paid by an employer who did not withhold Social Security from salary.  Most often this applies to state and local governments, but only in some states.  Massachusetts, Connecticut, Maine and Rhode Island are among the states who do not withhold Social Security from governmental employee salaries. 

The End of WEP and GPO

Explaining and understanding the full mechanics of the WEP and the GPO is complicated. However, with both the Government Pension Offset and Windfall Elimination Provision repeal through recent legislation, these complicated rules are no longer relevant. In short summary, the WEP applied to an individual’s own Social Security retirement benefit if the individual also received a non-covered pension. The maximum reduction to a Social Security beneficiary’s retirement benefit for the WEP was $587/month in 2024. The GPO, on the other hand, applied to Social Security benefit eligibility from a spouse or ex spouse’s work history and reduced Social Security benefits by two-thirds of the amount of the public sector pension with no maximum reduction. 

Retirees who were previously affected by these programs will now receive their full Social Security benefits for calendar year 2024 and in future years. 

Who Is Affected by the Repeal?

Recipients of Social Security benefits are generally aware that they are subject to either WEP or GPO because when they apply for benefits, they are informed of the adjustment in their benefit calculation. Teachers, firefighters, police officers, employees of state or local governments and federal employees hired before 1984 are common groups are affected by the WEP and the GPO, if their pensions are non-covered. 

It is important to note that individuals that have not earned a Social Security benefit on their own work history or that of a spouse or ex-spouse will not be newly eligible for Social Security retirement benefits. The worker (or spouse or ex-spouse) would have to have contributed to the Social Security system through payroll tax withholding for at least 40 qualifying quarters.  

According to a Congressional Research Service report, as of December 2023, 2,479,026 Social Security Beneficiaries were affected by the WEP and/or GPO. At the end of 2023 in Massachusetts, 116,553 retirees receiving Social Security benefits were affected, which is the sixth highest in the nation. In New Hampshire, 10,916 retiree Social Security beneficiaries were affected.  

The text of the Social Security Fairness Act says that “the amendments made by this Act shall apply with respect to monthly insurance benefits payable under title II of the Social Security Act for months after December 2023.” This means that any Social Security beneficiaries receiving deductions from their Social Security benefits because of WEP or GPO should have their benefits retroactively adjusted for all of 2024.  

The SSA should be able to quickly eliminate WEP and GPO adjustments for 2025 but will have to come up with a plan to retroactively pay beneficiaries for 2024 since this legislation is being applied for all Social Security benefits received in 2024. The retroactive payment should come in the form of a lump sum payment in 2025 that will be taxable as Social Security income in 2025.  

The SSA will send out notices to affected Social Security beneficiaries explaining how the elimination of the WEP and the GPO will increase their Social Security benefit going forward. But it is too early to know when that communication will be delivered to beneficiaries. If you have created a my Social Security account, and receive communication from the SSA online, make sure you check your online account for messages from the SSA regarding benefit adjustments due to the WEP and the GPO elimination. Otherwise look for notifications in the mail. 

Impact on the Social Security Trust Fund

This legislation will increase the deficit from the Social Security Trust Fund by $200 billion over the next 10 years. In this year’s “Actuarial Status of the Social Security Trust Funds” the Social Security Board of Trustees estimated that the projected reserve depletion date is 2035. This doesn’t mean that the Social Security Administration (SSA) will not be able to pay benefits to Social Security after 2035 but rather that the projected income from Social Security payroll taxes will not be enough annually to cover projected payments. Congress will have to come up with a solution to this problem at some point in the next ten years and the elimination of the WEP and the GPO will likely cause them to have to act sooner. 

If you have questions about how the Social Security Fairness Act will affect your Social Security retirement benefit, or the income tax implications from retroactive Social Security payments that are a result of this legislation, please reach out to your advisor. If you want to see how you can more efficiently use your resources for your retirement or legacy planning, please reach out to a member of our team.