Social Security Fairness Act – Good and Bad for Taxpayers
By
Louis Horkan
Reviewed by Nathan Kattner
The Social Security Fairness Act offers a windfall for some government pensioners, but Social Security recipients as a whole may pay the price
Introduction
Unless you spent the last month or so living on a deserted island or somehow avoided all media (TV, radio and Internet), you no doubt heard or read about the Social Security Fairness Act.
This is a bipartisan bill signed into law the start of 2025 by President Biden. It is considered by many as one of the most significant changes to the Social Security system in decades.
The Social Security Fairness Act is intended to change law governing some government pensions and Social Security benefits.
One part of the new law strikes down the Windfall Elimination Provision (WEP), which was originally enacted back in 1983 during the Reagan era.
The second area covered strikes down the Government Pension Offset (GPO), which was enacted in 1977.
Without getting into the nuts and bolts of both provisions yet (we do so shortly), the Social Security Fairness Act is intended to address a relatively small, albeit important, group of public sector pension holders and their spouses or survivors.
As would be expected with new legislation, there is a lot of confusion. Especially when it deals with important issues, such as retirement, Social Security benefits, taxes, and the security and solvency of the underlying financial safety net serving a large percentage of our citizens.
This includes how it will be enacted, how many will be effected, when those affected can expect to see changes to their benefits, and a major wildcard – how it will potentially impact our Social Security system as a whole going forward.
Truth is the new law will help people we all rely on every day, potentially providing a very decent windfall for these citizens. This includes estimates northward of three million government workers who’ve toiled for some period in their career at the local, state and federal level.
The fact this legislation passed in the current environment with significant bipartisan approval in both chambers of congress says quite a bit. Maybe there is something fair in this new law…maybe even something overdue.
That said, the reality is that this legislation will likely impact all of us, even if we aren’t in the targeted group. That’s not hyperbole, so you need to pay attention.
To help you better understand the Social Security Fairness Act, today we try to explain the new legislation and break down the key issues.
But before jumping into all of that, lets do a quick refresher on the Social Security trust funds, which will help with the rest of what’s covered.
SS Trust Funds
The Social Security Administration (SSA) administers the Social Security system in the U.S. As part of their duties they maintain and administer two separate trust funds within the U.S. Treasury – the Old-Age and Survivors Insurance (OASI) Trust Fund, from which the SSA pays retirement and survivors benefits, and the Disability Insurance (DI) Trust Fund, from which they pay disability benefits.
The Federal Insurance Contributions Act (FICA) taxes that most of us have withheld from our paychecks each month helps to fund these accounts.
The important thing to remember now is the fact that these trusts are finite – they have a certain amount of money in them to pay for current and future Social Security benefits that you, me and the rest of us are counting on. We’ll come back to this point in a bit.
Social Security Fairness Act targets this group
Mentioned previously that the target group of this newly-signed legislation is relatively small.
In its January 31, 2025 report, The Social Security Fairness Act of 2023,” the Congressional Resource Service (CSR), a nonpartisan group that works at the behest of Congress, cited the Social Security Administration’s estimate that, “Approximately 3.2 million individuals had their Social Security benefits reduced or eliminated by the GPO, the WEP, or both.”
Like I said, relatively small, especially when compared to the overall U.S. workforce. The workforce is currently estimated at nearly 169 million people working or looking for work as of September 2024 by the U.S. Bureau of Labor Statistics.
Safe to say, most in this country are largely unaware of the Social Security Fairness Act, WEP or GPO in general, as the vast majority of us have been unaffected up till now.
But for those three-million plus who have seen their SS benefits reduced or eliminated, this is huge news. This new legislation will put more money back in their pocket…at some point.
How much and when that’s likely to occur has everyone scratching their head at this point.
Who are these people
For the most part, these are people like yourself, a family member, friend or neighbor who might have worked at some point as a teacher, police officer, fireman, Department of Motor Vehicles employee, a court clerk, or numerous other jobs that serve the public.
People who worked for “part” of their career serving in the public sector for employers at the local, state or federal level. (Note – some work for non-U.S. employers)
Importantly, members of this group (either directly or as a spouse or survivor) worked (or still work) for government employers who offered non-covered pensions – a type of retirement pension where FICA taxes are not collected.
Instead of Social Security, they paid into and earned pensions that by law governed they would receive a Private Insurance Amount (PIA) that would be at least equal to what they would have been due had they participated in Social Security and had FICA taxes collected from them. Their non-covered pension was in leu of Social Security.
But there’s one more critical element that distinguishes this group. Not only did they spend part of their career in the public sector – they also spent time working for employers in the private sector. Enough time that they qualified for Social Security.
A person in this special group might have started in the private sector and worked a fair number of years before later in life deciding to give back by serving the public in a government job. Or vice versa.
And in those private sector jobs they had FICA taxes withheld, enabling them to participate in and be eligible for Social Security.
Well, with a catch…
Social Security Fairness Act – WEP Provision
What exactly is WEP?
In a nutshell, the provision was intended to prevent any of us from enjoying the bonus (e.g., windfall) of receiving full non-covered pension benefits earned from certain government employers, on top of full Social Security benefits that might have been earned for work provided for a private sector employer.
According to the SSA, the WEP is actually a formula that is used to adjust Social Security worker benefits for people who receive a non-covered pension and who also qualify for Social Security benefits based on other covered earnings.
To try to simplify how this works, the SSA created a Program Explainer in 2024 which laid out the details of how Social Security benefits are calculated, as well as those for people in the targeted WEP group.
In the case of Social Security, the SSA ascertains the benefits of an individual using their lifetime average indexed monthly earnings (AIME). They apply different percentages (90-percent, 32-percent and 15-percent, respectively) to the individual’s AIME.
They then add those numbers to ascertain the individual’s monthly benefit (PIA) at full retirement age (FRA), which for those born in 1960 or after is age 67.
According to the SSA explainer, for most people PIA in 2024 is calculated as follows:
- 90-percent of the first $1,174 of AIME, plus
- 32-percent of AIME over $1,174 and through $7,078, plus
- 15-percent of AIME over $7,078
To determine the amount of WEP reduction to an individual’s SS benefit, they create a WEP PIA, which works basically the same, but scales from 90-percent of AIME down to 40-percent for the first percentage utilized, broken into five-percent increments.
They also utilize years of coverage (YOCs) to make the WEP PIA calculation. For those with 30 or more YOCs, their first percentage remains at 90-percent. Meanwhile an employee with 21–29 YOCs will have a first PIA factor between 45–85 percent, and workers with 20 YOCs have a first PIA factor of 40 percent, according to the SSA explainer. You can view a detailed example of how this works here.
There is an important additional provision known as the WEP guarantee. This limits the difference between the normal and WEP PIA to no more than half of the monthly non-covered pension, which in application reduces the amount of the reduction that might normally be applied.
What this translates to is the fact your Social Security benefit can’t be reduced by more than 50-percent of your non-covered pension. For sake of simplicity, a simple example of how this would work is the following:
As demonstrated, WEP is a big deal and took a big bite out of the recipient’s monthly Social Security and their overall benefits. The Social Security Fairness Act puts that money back into their pockets.
Oak Harvest Founder and CEO Troy Sharpe, CFP®, CPWA®, CTS®, does a great job of explaining the law and how the Fairness Act will benefit individuals previously subject to WEP in his video Social Security Fairness Act Explained: What It Means for Your Retirement.
Social Security Fairness Act – GPO Provision
The Government Pension Offset differs from the WEP in that it deals with beneficiaries who are eligible for spousal or survivor benefits, but who also receive their own non-covered pension.
Just as with the WEP, it is intended to prevent you or your spouse from receiving what was perceived as an unfair windfall.
In the case of the GPO, it was intended to keep a spouse or survivor from receiving full non-covered pension benefits earned from certain government employers, on top of full spousal or survivor Social Security benefits that might be owed due to their spouse’s Social Security.
The GPO would partially or even fully offset the spousal or survivor benefit by reducing the monthly non-covered pension by a percentage. The offset was originally calculated on a dollar-for-dollar basis, but that was reduced to 2/3rds by congress in 1983, according to the SSA.
For sake of simplicity, a simple example of the how offset would work is the following:
As demonstrated, the GPO is a big deal and took a big bite out of the family’s monthly Social Security and their overall benefits. The Social Security Fairness Act puts that money back into their pockets.
Sharpe details and demonstrates the GPO (before and after enactment) in the aforementioned Social Security Fairness Act video.
Where things stand now
Remember that earlier quip about head scratching? Well, that wasn’t just banter on my part. That very much sums up where things stand now with all of this.
The law has been passed, the ink has dried and promises made, but beyond that few of the details have been ironed out. In fact, part of the new law requires that the SSA sort things out as timely as possible.
What has been made clear is the SSA will be making manual adjustments to the accounts of affected individuals, but with more than three-million people estimated in the affected group, that is obviously going to take considerable time.
Overall, their main objective is to provide retroactive payments dating from the start of 2024, so recipients will probably receive a lump sum adjustment for all of 2024 at some point.
They don’t provide an estimate on timing – just that they are working out their plan and will update the public when they can.
Additionally, they need to start the process of making the upward adjustments to the current benefits of the group targeted. Translated – even though you are supposed to be getting the increased SS benefits starting now, those adjustments will take time.
They do make clear that for most there is no need to do anything. But they caution that if you never applied for retirement or spousal benefits related to WEP or GPO in the past, you may need to do so. And they suggest that the sooner you do so the quicker they will eventually be able to process your application.
The good news is you’ll eventually get the retroactive payment and your current benefits will be upwardly adjusted on a going-forward basis.
They offer a special webpage you can visit for the most current updates. You are encouraged to check often.
Bigger picture – we will all be impacted
Having laid all of that out, we come to the big question of where does all that money come from?
The Congressional Budget Office addressed this in their H.R. 82, Social Security Fairness Act of 2023 Cost Estimate.
They estimate that the combined cost off eliminating WEP and GPO over the 2024 to 2034 period will be more than $211 billion. Given their track record (underestimating program costs), and the nature of budgets in Washington, many believe that amount could easily double. Wow!
Consider that with their August 2024 report, “CBO’s 2024 Long-Term Projections for Social Security,” stating that they estimate the two aforementioned Social Security trust funds are expected to be exhausted in fiscal year 2034.
OMG!
Fact is there are estimates this could happen sooner, and with the additional outlay of $300 to $400 billion over the next 10 years to eliminate WEP and GPO, that timeline could easily be pulled forward.
Even without the added costs brought on by the passage of the Social Security Fairness Act, something was going to have to happen to sure up Social Security going forward, which everyone in Washington already knows – they just aren’t saying it out loud.
They will act though. In fact, there are already options being floated, one of which is “means” testing. Such a measure wouldn’t affect the majority of Americans, but for those who might be considered wealthy (we aren’t talking billionaires – potentially someone with a million accumulated in savings), this could have a big impact.
Sharpe speaks to this issue of those considered “wealthy” potentially having a portion of the Social Security they’ve earned basically forfeited at some point if means testing were to be implemented in order to help the system remain solvent into the future.
“It’s an easy solution where they can politically pitch it as something that’s only going to impact the wealthy, the ultra-rich,” he says. “Now, all of a sudden, you’re considered one of these high-income individuals who doesn’t deserve all of their Social Security. This is part of the current options on the table for them to consider.”
He goes on to make clear in his Social Security Fairness Act video that you need to be thinking about this now, as well as your overall taxes, planning, RMDs and whether you want to deal with all of this sooner or prefer to kick the issue down the road.
Conclusion
There’s definitely a lot there to take in when it comes to this new legislation, especially when you consider that there is such a dearth of information and the fact that much of the details on how it will all work are simply unavailable.
“Check back later” doesn’t seem to fit with a program that is considered this monumental. Regardless, this is a big deal and it makes sense it will take a tremendous amount of time to execute it correctly.
It’s certainly fair to say that the Social Security Fairness Act is a windfall for some who will see their benefits increase going forward. And that can be considered a good thing.
But as stated at the beginning, the costs associated with making this happen will certainly reverberate and have a big impact on the system and all of us as Social Security recipients.
Bottom line, change in Social Security is on the horizon, and it may come sooner than most expect.
To help plan for that change and all the other big issues associated with retirement, you definitely need to work with a proven team who can help you navigate your golden years.
At Oak Harvest we’d be happy to consult with you on how the Social Security Fairness Act may impact you and your overall taxes and planning. We can look at your current retirement plan to determine if it can really meet your need and goals.
Or we can assist you by creating a retirement plan capable of helping you do so. We can build a holistic, comprehensive retirement plan addressing relevant issues, utilizing strategies that cover your Social Security, taxes, income, spending, healthcare, legacy, and more, customized to your family’s specific needs.
A plan created with the goal of ensuring you can successfully live out the retirement you and your spouse envision.
If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who can advise on all your retirement needs, Schedule a call today!
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Let Us Help You Achieve the Retirement You Deserve!
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