Good news – the new equity law will benefit this group of people with these needs
The Social Security Fairness Act seeks to end reductions caused by WEP and GPO provisions
by Raquel
in FINANCE
Good news – the new equity law will benefit this group of people with these needs
Government pensions provide significant retirement benefits, but they can also have drawbacks. A pension from a job not covered by Social Security could lower a person’s benefits by several hundred dollars monthly.
This reduction happens due to two legal provisions: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Both rules decrease Social Security payments for individuals receiving a pension from work that did not require paying into the Social Security system.
“The initial concern was that people were essentially benefiting twice,” explains Yuval Bar-Or, a professor at the Johns Hopkins Carey Business School. The reasoning was that individuals receiving government pensions shouldn’t get Social Security benefits calculated the same way as those without similar pensions.
Now, more than four decades after WEP was introduced, the Social Security Fairness Act aims to repeal it. Although the proposal has support from both parties, it’s uncertain if it will become law this year.
Understanding WEP and GPO
The Government Pension Offset (GPO) was introduced in 1977, while the Windfall Elimination Provision (WEP) became part of the 1983 Social Security reforms. Both provisions work in similar ways but target different groups of beneficiaries:
- WEP reduces Social Security payments for individuals with pensions from jobs not covered by Social Security. For instance, some teaching positions in certain states don’t contribute to Social Security, but teachers might also have other jobs that make them eligible for Social Security benefits. With WEP, their benefits are reduced because of their teacher pension.
- GPO, on the other hand, applies to Social Security spousal or survivor benefits and reduces them for individuals with pensions from non-covered employment.
Sharona Hoffman, a professor of law and bioethics at Case Western Reserve University, suggested that the goal may have been to lower Social Security costs. Fairness was another concern. Social Security benefits are designed to replace a larger share of income for workers with lower earnings. According to the Social Security Administration, for individuals reaching full retirement age in 2023, the system replaced about 78% of income for very low earners, 42% for those with medium earnings, and 29% for those with the highest earnings.
If Social Security benefits are based on only part of a person’s income, they end up with a higher replacement rate than they would otherwise qualify for.
Up to 1983, workers not covered by Social Security in their jobs were considered long-term, low-income earners when their benefits were calculated. This resulted in them receiving a larger percentage of their earnings as Social Security benefits, even though they also received a pension from a job that didn’t require Social Security taxes. The Social Security Administration explains that WEP was introduced to address this imbalance.
Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, noted that WEP doesn’t fully eliminate Social Security benefits. The current maximum reduction is approximately $600. She added that the GPO works differently, often eliminating benefits entirely, particularly spousal benefits.
Details of the Social Security Fairness Act
The Social Security Fairness Act seeks to repeal both WEP and GPO. If these provisions are removed, Social Security benefits would be calculated the same way for everyone, regardless of whether they also receive a non-covered pension.
Sharona Hoffman remarked that the changes would impact a relatively small group of people.
According to the Social Security Administration, around 2 million people, or 3.1% of beneficiaries, faced WEP-related reductions in 2022. Additionally, approximately 13% of spousal and survivor beneficiaries—about 735,000 individuals—were affected by the GPO that same year.
Many view the WEP and GPO as unjust penalties, and the Social Security Fairness Act was introduced to address this issue, according to Bar-Or. He highlighted that the bill passed the House with strong bipartisan support, as the matter is not typically seen as politically divisive.
However, the bill comes with significant challenges. Its most notable drawback is the estimated $190 billion cost over the next decade. Hoffman pointed out that this amount is far from insignificant.
The Congressional Budget Office has projected that losing these funds would cause the Social Security trust funds to run out about six months earlier than previously expected.