The Savings Game: Social Security Fairness Act awaits Biden’s signature

A few weeks ago, I wrote about the Social Security Fairness Act, a bill intended to give relief to individuals who earned a pension from work outside Social Security and who also had also done other work where they paid FICA taxes and therefore earned benefits from Social Security.

In late December, the Senate followed the lead of the U.S. House of Representatives and passed the bill, and President Joe Biden is expected to sign it into law.

This means that, starting retroactively to January 2024, individuals who receive a pension from work outside Social Security and who also have at least 10 years of wages from work covered by Social Security will receive a significant increase in Social Security benefits.

The bill repeals two regulations which reduces benefits for many Social Security beneficiaries. The two provisions are the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

As I indicated in my previous column, when an individual receives a pension from work outside Social Security, the Social Security Administration uses WEP to reduce their Social Security benefit. Now those individuals will receive a higher Social Security benefit.

The GPO provision impacts benefits that an employee would be eligible for regarding spousal benefits and survivor benefits. Those benefits now are reduced by two-thirds of the pension received from work outside Social Security.

For example, assume an employee would normally be entitled to a survivor benefit of $1,500/month as a result of the work record of his/her deceased spouse. If that worker is receiving $1,800/month from a pension because of work outside Social Security. That employee’s survivor benefit would be reduced by two-thirds of $1,800 , or $1,200. So instead of receiving a benefit of $1,500, that employee would only be entitled to a monthly survivor benefit of $300/month. Under the new law, the employee would then be eligible for the $1,500/month survivor benefit.

Many employees have been impacted by the provisions of WEP and GPO. The repeal of these provisions impacts more than 3 million retired teachers, law enforcement workers, firefighters and others. Critics of the bill point out that the repeal of these provisions will increase Social Security benefits by approximately $196 billion over 10 years. The bill makes no provision for new income to Social Security.

The repeal of WEP and GPO has a significant impact on Social Security beneficiaries in several states including Texas, Illinois, Ohio, Massachusetts, Colorado, Nevada, Alaska, Hawaii and Maine.

It is well known that by 2033, there will be a significant deficit in funding Social Security benefits, and so far Congress has taken no action to make up for this deficit. In a subsequent column, I will address some of the possible ways this deficit can be eliminated. If Congress takes no action, then Social Security benefits would have to be reduced by approximately 25% on average for Social Security beneficiaries.

Bottom line: Many employees will see their benefits increase significantly in 2025. This means that there will be a significant increase in future deficits.

Hopefully, Congress will not wait until the last minute to take steps to ensure that benefits will have to be reduced significantly for Social Security beneficiaries by 2033.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.