[PODCAST] The Social Security Fairness Act: Is it Really Fair? From Security Mutual

On January 6, 2025 President Biden signed the Social Security Fairness Act into law. But is it really fair? And how does it affect Social Security’s solvency?

The new law would repeal two long-held provisions—the Windfall Elimination Provision and Government Pension Offset—that limit benefits for people who are also receiving benefits from state and local pensions that were exempt from paying Social Security withholding taxes.

The first provision, Windfall Elimination, also known as WEP, is one of the most complicated parts of Social Security. Some state and local governments provide employer-sponsored retirement programs for their employees where neither the employer nor employee pays Social Security withholding. These exempt retirement programs are considered to be in lieu of Social Security. For example, teachers in the state of Connecticut have their own retirement pension and do not have Social Security withheld from their paychecks.

The second provision, Government Pension Offset, also known as GPO, is a bit easier to understand. GPO is applicable only to Social Security spousal and survivor benefits. It reduces these benefits payable to a worker who also receives a non-covered pension, that is, from a job where no Social Security taxes were withheld. The GPO benefit reduction is equal to two thirds of the pension from non-covered Social Security employment. If the pension is big enough, it could completely eliminate the Social Security spousal and survivor benefit.

The repeal of these two provisions means that, according to the Congressional Budget Office, approximately 2.5 million retirees will see their benefits increase.[2]

The government says it took this action in the interest of fairness. Senate Majority Leader Chuck Schumer tweeted that “This would ensure Americans are not erroneously denied their well-earned Social Security benefits simply because they chose careers in public service.”[3]

But it costs money. Perhaps the biggest concern people have with Social Security is its long-term viability. Based on the Trustees report published in May 2024, without any further action, the Social Security Trust Fund is projected to run out of money in 2033. The result of this would be a 21 percent reduction in all benefits for everyone.[4]

The Social Security Fairness Act could make the situation worse. It increases the amount paid out of the Trust Fund by an estimated $190 billion over 10 years, without any corresponding increase in the amount paid in.[5] It is estimated that the Act will shorten the life expectancy of the Trust fund by another 6 months.[6]

The last major reform of the Social Security system occurred in 1983. At the time, it was estimated that the Trust Fund would be solvent for the next 75 years.[7] The Social Security Fairness Act may put additional strain on the system which was not anticipated.

SML Planning Minute – Episode 314 – “The Social Security Fairness Act: Is it Really Fair?”  examines the signed the Social Security Fairness Act in more detail.