On January 5, 2025, President Biden signed the Social Security Fairness Act into law. This law eliminated the Windfall Elimination Provision (WEP), and the Government Pension Offset (GPO). It affects just over 3.2 million public servants including teachers, police officers, firefighters and other government employees and, for many, will result in a substantial increase in Social Security benefits. The Social Security Administration (SSA) started paying retroactive benefits and increased monthly benefit payments to affected individuals starting February 24th. Most beneficiaries should see their new monthly benefit amounts in April 2025.
What was the Windfall Elimination Provision (WEP) and how did it affect Social Security benefits?
Many public and government employees, including those in Massachusetts, do not have Social Security taxes withheld from their wages. They don’t accrue Social Security credits and therefore cannot receive Social Security or disability payments in retirement. Instead, these employees have a certain portion of their wages withheld towards a public retirement pension system.
However, not all employees spend their entire careers in public service.
For example, Julia worked part-time as a childcare worker for ten years before leaving to pursue a career as a teacher. As a childcare worker Julia had Social Security (FICA) taxes withheld from her wages and worked long enough to be eligible for Social Security benefits. As a teacher, she did not pay into Social Security, but a portion of her wages were withheld and contributed to the Massachusetts Teachers Retirement System (MTRS). Conversely, Matt was a police officer who began his career in his early twenties and retired in his mid-fifties. Then, Matt worked for ten years for a corporation providing security services and paying FICA taxes.
Why the WEP?
The purpose of the WEP was to prevent people with public pensions from receiving a “windfall” by collecting their pension and full Social Security benefits.
Under the WEP, both Julia and Matt’s earned Social Security benefits could have been reduced by up to 50% but not eliminated entirely.
Here is an example of how the WEP previously worked. Assuming Matt has a monthly pension of $3,000 and a monthly Social Security benefit of $2,000:
- Calculate half of the pension: $3,000/2 = $1,500
- Subtract half the pension from the Social Security benefit: $2,000 – $1,500 = $500
Under the WEP, Matt would only receive $500/month in Social Security benefits for a total monthly retirement benefit of $3,500. Since the WEP has been eliminated, Matt will receive a full $5,000/month ($3,000 pension and the full $2,000 Social Security benefit). This amounts to an additional $18,000 per year.
What was the Government Pension Offset (GPO) and how did it affect spousal and survivor Social Security benefits?
Beneficiaries of Social Security payments can collect the greater of what they would receive on their own record or on their spouse’s. While the WEP reduced benefits that employees were directly owed, the GPO could reduce derivative Social Security benefits such as spousal and survivor benefits. Here is an example of how the GPO worked, assuming the following facts for Julia and her husband Martin.
Because two-thirds of Julia’s pension is greater than her full spousal benefit, Julia was ineligible to collect any spousal benefit from Martin’s record. Also, her Social Security benefit would have been reduced because of the WEP. With the passage of the Social Security Fairness Act, Julia will now be able to collect her full spousal benefits, increasing her retirement income by $21,000 a year.
How is the SSA implementing this law?
The Social Security Administration began paying retroactive benefits (back to January 2024) and increased monthly benefit payments starting in February. Most affected beneficiaries should have received their new monthly benefit amount this month.
In conclusion, the Social Security Fairness Act ensures that those who have paid into Social Security receive their rightful benefit and those who are eligible for spousal and survivor benefits also receive their fair benefit.
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