The Social Security Fairness Act of 2023, enacted on January 5, 2025, has ushered in significant changes to the Social Security landscape, particularly for those who dedicated their careers to public service.  This includes teachers, firefighters, police officers, and other public servants in multiple states that may have paid into Social Security prior to, or after, their public service role. Also benefiting are individuals that were federal employees that were covered by the Civil Service Retirement System (CSRS) prior to 1984. This legislation aims to address long-standing concerns regarding the treatment of individuals who worked in jobs not traditionally covered by Social Security. While the Act promises increased benefits and a fairer system for many, it also raises important questions about the program's long-term financial health.

Key Provisions and Their Implications

The Act focuses primarily on the repeal of two controversial provisions: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

• Windfall Elimination Provision (WEP): The WEP reduced Social Security benefits for individuals who also received pensions from jobs not covered by Social Security, such as state and local government positions. This provision was often criticized for unfairly penalizing public servants. Its repeal aims to ensure that these individuals receive Social Security benefits that accurately reflect their contributions to the workforce.
• Government Pension Offset (GPO): The GPO impacted spousal or survivor benefits. It reduced Social Security benefits for spouses or survivors of individuals who received pensions from non-Social Security covered employment. This provision was seen as particularly inequitable for spouses who may have relied on these benefits for their financial security. The GPO's repeal seeks to provide fairer treatment for these individuals.

Benefits for Retired Individuals

The repeal of the WEP and GPO brings several potential benefits for retirees:

• Increased Benefits: Many retirees, especially those who worked in public service, will likely see a significant increase in their monthly Social Security benefits. This can provide a much-needed financial boost and enhance their retirement security.
• Addressing Perceived Injustice: The WEP and GPO were widely perceived as unfair penalties imposed on public servants. Their repeal addresses these concerns and aims to create a more equitable Social Security system that recognizes the contributions of all workers.
• Improved Standard of Living: The increased benefits can help retirees maintain their standard of living, cover essential expenses such as healthcare and housing, and potentially enjoy a better quality of life in retirement.

The best way to think about this is to use examples to discuss the impacts of the repeal of WEP and GPO:

Example 1: Retired Teacher

• Before WEP Repeal: Mrs. Johnson, a retired teacher, worked for 30 years in a state where teachers don't pay into Social Security. She also worked part-time for 10 years at a local bookstore, where she did pay into Social Security. Due to the WEP, her Social Security benefit based on her bookstore earnings was significantly reduced. Let us say she was entitled to $800 based on her bookstore earnings, but the WEP reduced it to $500.
• After WEP Repeal: With the repeal of the WEP, Mrs. Johnson's Social Security benefit will be recalculated based on her actual earnings at the bookstore, without the WEP reduction. She will now receive the full $800 she earned, resulting in a $300 increase in her monthly benefit. This extra income can help her cover rising healthcare costs and maintain her standard of living in retirement.

Example 2: Surviving Spouse of a Police Officer

• Before GPO Repeal: Mr. Rodriguez was a police officer for 35 years in a city where officers do not pay Social Security. His wife, Mrs. Rodriguez, worked in the private sector and paid into Social Security throughout her career. When Mr. Rodriguez passed away, Mrs. Rodriguez was eligible for survivor benefits based on his earnings record. However, the GPO reduced her survivor benefit by two-thirds of his pension amount. Let us say her survivor benefit was $1,500, but the GPO reduced it to $500.
• After GPO Repeal: With the repeal of the GPO, Mrs. Rodriguez will now receive the full survivor benefit of $1,500 without any reduction. This significant increase of $1,000 per month provides her with much-needed financial security and peace of mind after the loss of her husband.

These are just two examples of how the Social Security Fairness Act can positively impact the lives of individuals who were previously penalized by the WEP and GPO. The repeal of these provisions brings greater fairness, financial security, and peace of mind to many retirees and their families.

Potential Challenges and Considerations

While the Social Security Fairness Act offers significant advantages for several retirees, it is important to note that there are potential challenges and possible long-term implications:

• Impact on Program Solvency: The repeal of the WEP and GPO is projected to increase Social Security expenditures. This raises concerns about the program's long-term financial sustainability and the potential need for future adjustments to ensure its viability for future generations.
  • According to the Congressional Budget Office (CBO) estimates, repealing the WEP and GPO will accelerate the depletion of the Social Security trust fund by about six months (based on current projections of depletion occurring in 2033) -> these are simply projections, and the dates could vary significantly depending on various factors such as economic growth and changes to demographics.
• Implementation Challenges: The Social Security Administration (SSA) faces the complex task of implementing these changes, recalculating benefits for millions of beneficiaries, and processing retroactive payments.
  • Note that the retroactive provision is a critical component of the Act, as it ensures that individuals penalized by the WEP and GPO receive the full benefits they deserve, going back to the beginning of 2024.
  • This process may encounter delays, and retirees might experience a waiting period before receiving their increased benefits. We have seen that it could take upwards of 1 year for retroactive payments to be disbursed.
• Potential for Future Benefit Reductions: To offset the increased costs associated with the Act, policymakers may consider future adjustments to the Social Security system, such as raising the retirement age or adjusting benefit formulas. These potential changes could impact future retirees and require careful consideration.

The Social Security Fairness Act of 2023 marks a significant step towards a more equitable Social Security system. The repeal of WEP and GPO aims to provide fairer treatment and increased benefits for millions of retirees, particularly those who dedicated their careers to public service. However, it is essential to remain mindful of the potential long-term implications for the program's financial health. We believe this is vital information to share with our clients as many of you will potentially be positively impacted by these recent developments. For those affected, this is a key component in the comprehensive approach to assisting you in achieving financial comfort and should be factored into the plan that was previously developed with your financial advisor. As always, if you have any questions, please do not hesitate to reach out to your advisor. We hope that you are having a great start to 2025 and look forward to speaking with you throughout the year.