On November 19th, the U.S. House of Representatives passed the Social Security Fairness Act. The goal of this legislation is to remove two provisions that reduce the Social Security benefits of roughly 2.8 million retirees who receive a pension from a non-Social Security-covered job. These are largely former state, local, and federal workers, including law enforcement and teachers.
Windfall Elimination Provision (WEP)
The WEP adjusts how benefits are calculated for individuals who receive pensions from non-Social Security-covered employment, but through part-time employment or a change in careers, have paid enough into Social Security to qualify for benefits.
How It Works
People with a mix of non-covered pensions and covered earnings might appear to have lower lifetime earnings. Since the formula used to calculate benefits favors lower-income workers, this could qualify these individuals for higher benefits. Under the WEP, a less generous formula is applied, reducing the percentage used to calculate benefits from the first portion of the worker’s average indexed monthly earnings.
The Impact
For 2024, the maximum reduction in monthly benefits allowed is $557. Also, the reduction amount cannot exceed 50% of the pension amount from your non-covered employment. Workers with 30+ years of “substantial earnings” under Social Security are not affected by the WEP.
Government Pension Offset (GPO)
This U.S. federal rule affects Social Security spousal and survivor benefits for individuals who receive a pension from non-Social Security-covered employment. Its purpose is to adjust Social Security benefits to account for pensions from jobs not covered by Social Security taxes.
How It Works
The GPO prevents “double-dipping,” where an individual receives both a full government pension from non-covered employment and full Social Security spousal or survivor benefits, which are intended for financial support when the primary earner in a marriage retires or passes away. It specifically applies to spousal or survivor benefits from Social Security.
The Impact
The GPO reduces Social Security spousal or survivor benefits by two-thirds of the amount of the government pension. For example, If your monthly government pension is $1,500, two-thirds of this amount ($1,000) is subtracted from your Social Security spousal or survivor benefit. If your spousal benefit is $900, it would be reduced to $0 because the GPO offset exceeds the benefit.
What’s Next
If the Social Security Fairness Act comes up for a vote in the Senate, it’s expected to have the majority needed for it to pass. However, lawmakers will need to act prior to December 31, when the bill effectively dies. It is projected that passing the bill would cost around $190 billion over a decade and hasten the depletion of the Social Security trust funds by six months to a year.
