The Social Security Fairness Act repeals two federal laws that reduced Social Security benefits for those who also received public pension benefits. For those who are receiving or expect to receive a pension from public sector work and are also receiving or expect to receive a Social Security benefit, spousal benefit or survivor benefit, this change may have a material effect on income in retirement.
Who is Impacted
For those whose Social Security benefits have been reduced by either the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO) or who will receive a pension from work that did not require them to pay Social Security taxes (“non-covered employment”), you may be impacted by this change in the law. Common examples of impacted groups include teachers, police officers, firefighters, postal workers and other public sector employees. The WEP and the GPO reduced different types of Social Security benefits in different ways, so it is important to understand each in greater detail to determine if or how their repeal may impact your benefits.
The WEP would reduce a worker’s own Social Security benefits if they received a pension from non-covered employment and had fewer than thirty years of substantial earnings in jobs covered by Social Security.
- For example, Worker A worked 30 years as a state police officer and earned a pension for work that was not covered by Social Security. After leaving the police force, he spent an additional 10 years working in a private sector job that did pay into Social Security and entitled him to a benefit.
- Worker B worked full-time for 35 years as a teacher in a public school system that did not pay into Social Security and provided a pension at retirement. During much of his teaching career, he also worked part-time in a retail job that was covered by Social Security and entitled him to a benefit.
Under the WEP, both Worker A and Worker B would have seen a reduction in their available Social Security benefit due to the pensions they were receiving from their years of non-covered employment.
Conversely, the GPO would reduce only spousal or survivor Social Security benefits for individuals who received a pension from non-covered employment.
- For example, Worker C worked 20 years as a teacher in a public school system that did not pay into Social Security and provided a pension at retirement. She was also eligible for a spousal benefit of half her husband’s primary Social Security benefit. Under the GPO, her spousal benefit was reduced by two-thirds of the amount of her pension from her teaching career. At the time of her husband’s passing, she was then entitled to receive a survivor benefit equal to his full benefit amount. Her survivor benefit was similarly reduced under the GPO by two-thirds the amount of her pension from her teaching career.
Implications and Recommendations
Under the new law, if you are a current Social Security recipient who has had your benefits reduced by either the WEP or GPO, you can expect to see your benefits recalculated and increased. The adjustment applies to all recipients, beginning January 2024, regardless of when they first filed for Social Security. It is not yet known when these adjustments will be implemented but when they are, current recipients will most likely receive a lump sum payment for any benefits backdated to January 2024 and increased monthly benefits thereafter.
Similarly, if you are someone who has not yet filed for Social Security but who expects to receive a pension from non-covered employment, you will not be subject to the reductions previously imposed by the WEP or the GPO.
The passing of this Act may represent a major change to retirement planning for those who are impacted or expect to be impacted in the future. Please be aware of how this change in the law may affect your wealth plan and reach out to your Ancora advisor if you have questions about an adjustment to your current plan or other estate and wealth planning questions that we can assist with.