The Social Security Fairness Act: A Holiday Season Miracle
January 11, 2025
By Barbara O'Neill, CFP®, AFC®
The passage of legislation to increase Social Security benefits for some public sector workers and retirees, including many 403(b) plan participants, with bipartisan support in an extremely polarized political environment has been described by some as nothing short of miraculous. Yet, it happened. After four decades of failed attempts to repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), the Social Security Fairness Act (H.R. 82) passed the House of Representatives (327-75) and Senate (76-20) in November and December 2024, respectively, and was signed into law by President Biden in January 2025.
Why is this noteworthy? Approximately 2.8 million individuals (full disclosure: myself included) receive limited Social Security benefits because they receive a public sector job pension. In addition, about 6.6 million current state and local government workers are not covered by Social Security. As I wrote in an earlier post, many public school employees (and others) who are not covered by Social Security still manage to earn 40 quarters of coverage from FICA-taxed earnings prior to or after public sector jobs and from side hustles.
This post describes dozens of implications for those affected personally by the Social Security Fairness Act (SSFA) and WEP and GPO repeal. Some financial implications may also be useful for anyone who experiences any sustainable monthly income infusion. For example, payments received from a reverse mortgage or an annuity purchased with proceeds from a settlement or inheritance. The post concludes with a summary of research about the role of Social Security in retirement investment decisions, three “need to know” facts, and six take-away action steps.
WEP and GPO History
The windfall elimination provision (WEP) was enacted in 1983 as part of Social Security reform. It was designed to calculate benefits in a different way for workers whose primary job wasn’t covered by Social Security to distinguish them from long-term, low-wage workers who earned a similar amount. The WEP works by adjusting a key number in the primary insurance amount (PIA) benefit calculation formula for workers without 30 or more years of substantial earnings ($32,700 in 2025, adjusted annually for inflation).
Another Social Security adjustment for non-covered workers with a public sector pension is the government pension offset (GPO), which applies to those entitled to benefits as a survivor or spouse of a covered worker. Enacted in 1977, the GPO reduces benefits by two-thirds of a government pension (i.e., a 67% offset), which often erases any spousal benefit at all. For example, if someone receives a monthly pension payment of $1,200, two-thirds of that amount ($800) is deducted from his or her Social Security spousal benefit.
The WEP and GPO have been described as poorly executed attempts four decades ago to address the equity issue of workers in non-covered jobs benefitting from Social Security’s progressive benefit formula and appearing to be low earners. Former educator turned financial blogger Karl Fisch describes them as “a very blunt formula.” Alicia Munnell, Director of the Center for Retirement Research at Boston College and a SSFA opponent, acknowledges “improving the design [of the WEP] would be a welcome change.”
Unfortunately, in attempting to solve the issue of non-covered workers appearing to be low earners, the WEP and GPO created new equity issues, especially for women. Women live longer than men, on average, and the GPO, especially, often leaves widows with significantly reduced incomes, pushing some into poverty. Many personal impact stories were shared during SSFA hearings. In addition, some public employees report being blindsided by these rules and by benefit claw backs that result from erroneous overpayments.
The Social Security Fairness Act
The SSFA, the most significant change to Social Security law in over 40 years, repeals the WEP and GPO Social Security benefit reductions. As a result, some non-covered public sector retirees with pensions who managed to accumulate the 40 credits (10 years of work) required to qualify for Social Security will see an increase in their benefit amount without the WEP reduction. In addition, some spouses and survivors of covered workers who were denied benefits due the GPO may become newly eligible for benefits. Benefits will be retroactive to January 2024.
According to the Congressional Budget Office (CBO), eliminating the WEP will increase monthly benefits by an average of $360 by the end of 2025. The maximum benefit increase would be based on the maximum WEP reduction ($587 in 2024). About 3% of all Social Security beneficiaries are affected. The CBO also estimates that eliminating the GPO would increase monthly benefits by an average of $700 for spouses and $1,190 for surviving spouses. The benefit increase could theoretically be as high as the maximum Social Security benefit, which is $4,018 in 2025. About 1% of all Social Security beneficiaries are affected.
It is important to note that the SSFA will put more stress on an already precarious government program as its opponents rightly pointed out. Even before the SSFA passed, the 2024 Social Security Trustees report projected depletion of the trust fund by 2035, necessitating a 17% benefit cut. The SSFA will move the insolvency date up by six months and add an estimated $198 billion to the federal deficit over the next decade. Congress will need to decide on potential remedies to shore up Social Security (e.g., raising the wage cap, FICA taxes, and/or full retirement age) in the years ahead. Another remedy being discussed is refining the WEP and GPO calculations according to beneficiaries’ income (i.e., means testing). The pool of Social Security recipients affected by these rules includes those with both six-figure and four-figure annual pensions.
Dual Earners-Not Double Dippers
Some people have referred to those who earned both Social Security and pension benefits in a derogatory way, calling them "double dippers." My response is that is not true at all. Instead, they took the initiative (or found it financially necessary) to become "dual earners" (e.g., with side hustles or second jobs) or they had a mix of public and private sector jobs throughout their careers (e.g., 20 years in the corporate world and 20 years in education). Either way, they met the qualifications for both a pension and Social Security.
An example is a teacher who posted on my Facebook page about the impact of the SSFA:
This is a game-changer for me. I had 40-quarters of covered earnings before I re-careered into education. The minimal defined pension benefit I will receive, given my comparatively short tenure in education, would not offset the WEP and GPO deductions. This changes my glide path!
Impact on Personal Finances
Budgets and Cash Flow — Retirees (and future retirees) impacted by the WEP and GPO will receive full Social Security benefits without reductions, thereby improving their financial well-being. Like all Social Security beneficiaries, their benefits will be proportional to their lifetime contributions to Social Security. For those living on the financial edge, the SSFA will be life-changing. Increased monthly income can help cover essential living costs (e.g., housing, insurance, food, health care) that have been heavily impacted by inflation and perhaps reduce reliance on supplemental support from family members and government and non-profit agencies. For others, the repeal of the WEP and GPO will be life-enhancing and make an already comfortable lifestyle even more so (e.g., increased spending on travel and leisure activities).
The retroactive component of the SSFA will produce income akin to a tax refund. Wise uses of a one-time chunk of money include saving for emergencies, paying down debt, investing in a taxable account (e.g., mutual fund or ETF), charitable gifting, and/or spending to achieve “bucket list” financial goals.
Saving and Investing — With additional guaranteed income from Social Security, some retirees might decide to beef up their emergency funds to hedge against spending “shocks” like major dental work and home repairs. Others may decide to be a bit more aggressive in their 403(b) investment asset allocation if their pension and Social Security cover living expenses and they are less exposed to longevity risk (i.e., running out of money during your lifetime) and sequence of returns risk (i.e., experiencing a market downturn early in retirement).
Karl Fisch has written about this urging those with adequate guaranteed income (now including increased income from Social Security) to consider investing more aggressively. This advice applies to investments made both before and during retirement. With increased equity exposure, there is more potential for investment growth and a greater ability to outpace inflation and make assets last longer.
Income Taxes — With increased income from Social Security, some people will reach a higher tax bracket and more people will pay federal income tax on their benefits. Tax on Social Security is based on a calculation called “combined income” (adjusted gross income + nontaxable interest + half of Social Security income). If combined income is greater than $25,000 for single taxpayers and $32,000 for couples filing jointly, a portion of Social Security is taxable as shown below. Social Security recipients can request that the Social Security Administration withhold taxes to cover their extra tax liability. Social Security is also partially or fully taxed in nine states.
Source: Social Security Administration
For high earners, another tax that could result from an increased Social Security benefit is the net investment income tax (NIIT), a 3.8% Medicare surtax. In addition, the income-related monthly adjustment amount (IRMAA), a surcharge on Medicare Part B and Part D premiums for higher earners, could result. 2025 income (presumably including both increased monthly benefits and the retroactive benefit for 2024) will inform 2027 IRMAA premiums due to the two-year lookback rule. Income ranges at that time for the five tiers of IRMAA payments will be inflation adjusted upward from the 2025 IRMAA income levels shown below.
Source: U.S. Department of Health and Human Services
Retirement Planning — Receipt of additional guaranteed income from Social Security will undoubtedly change the way that some current beneficiaries manage their finances. For example, they may withdraw less from invested assets (exception: 403(b)s with required minimum distributions). Workers in the pipeline to collect future benefits may alter their planned retirement date. In addition, retirement planning will be improved for those in non-covered public sector jobs. Repealing the WEP and GPO will simplify benefit calculations and, when these workers request an online Social Security benefit estimate, it will be accurate and easier to understand.
Intergenerational Finances — Intergenerational impacts will vary depending on whether increased Social Security benefits are life-changing for low earners or life-enhancing for higher earners. Many older adults with limited resources have been relying on adult children for unpaid care-giving and/or financial support, thereby robbing the next generation of wealth-building opportunities. With additional income from Social Security, they could be less of a burden to others. On the other hand, baby boomers are the wealthiest generation ever and those with accumulated wealth might simply add their increased benefits to existing savings that gets inherited by heirs (or charities).
Other Financial Impacts — Passage of the SSFA will undoubtedly result in fewer financially stressed retirees. Numerous studies, including one that I co-authored years ago, have found associations between fewer negative financial life events (e.g., paying late fees, calls from creditors, maxed out credit cards) and better health. Another positive impact of the SSFA is that some public sector retirees will now have a large enough Social Security benefit to have Medicare premiums deducted from vs. having to pay monthly Medicare bills.
Potential negative impacts are an income increase for some beneficiaries that is sufficient to disqualify them for public benefits such as housing subsidies, SNAP, utility assistance, and premium subsidies on Marketplace health care plans (for those under age 65). This could actually result in a net loss of income.
Impact on Careers
Incentivized Public Employment — Supporters of the SSFA noted that knowledge of the WEP and GPO discourages some people from pursuing, or remaining in, public sector jobs. Their repeal could boost the hiring and retention of teachers, firefighters, police officers, and others in jobs that, for historical or other reasons, are not covered by Social Security.
Incentivized “Side Hustles” — 403bwise Facebook page members have been posting about sideline jobs or entrepreneurship to earn Social Security credits. Examples include: “Wow! Time to get a Social Security job!,” “I have 39/40. I'm sure I can find seasonal work with a tax preparer for one season after I retire (early) and get my last credit,” I have 37 credits. Trying to get to 40!,”and “You could do anything for a year, that pays into S.S.” Public sector employees have many skills that are transferrable to outside employment roles that can benefit society.
Macro Level Impacts
The SSFA has potential macroeconomic impacts on states and the nation as a whole. First, when 2.8 million people have extra monthly income plus a retroactive “bonus,” there will likely be higher sales and/or income tax revenue for states and cities (as well as more federal tax revenue) and fewer requests for public assistance. As an example, the CBO estimates savings of about $2 billion on SNAP over the next decade. In other words, there will be some offsetting cost reductions against the projected cost of implementing the SSFA.
Other positive results of the SSFA will be reduced poverty rates and fewer errors and benefit claw backs by the Social Security Administration (SSA), which cause considerable stress, confusion, and financial hardship to beneficiaries. In 2022, the SSA reported more than $457 million in improper payments related to the WEP and GPO in fiscal years 2017-2021. The SSFA should potentially reduce SSA administrative expenses.
Something to be very concerned about, however, is the potential for inflation, similar to what happened with cash infusions from pandemic stimulus. The CBO estimates the total cost of repealing the WEP and GPO to be $198 billion from 2024 to 2034 or about $20 billion a year and $40 billion in 2025 with the 2024 and 2025 benefit increases combined. This could impact the national inflation rate (i.e., the consumer price index or CPI) or at least inflation in states with a large share of WEP and GPO affected beneficiaries. According to a Wall Street Journal article, these states include Alaska, Colorado, Louisiana, Maine, Massachusetts, and Ohio. Increased inflation rates also have the potential to slow Federal Reserve interest rate reductions.
Finally, the elephant in the room: the future health of Social Security, which affects about 67 million Americans who receive benefits (1 in 5 people!). The SSFA admittedly made the program less financially secure and it’s possible that public employees’ fully restored benefits could be short-lived. With the depletion of the trust fund (i.e., money that isn’t needed to pay benefits and administrative costs in the current year) predicted within a decade, Karl Fisch wrote some very sobering words to ponder: “some folks…should see a nice increase in their benefits. But those increases might start to decrease in around nine years and, a few years after that folks might actually get less than they would have without passage of this legislation (if no other changes are made to Social Security and its “funding mechanism”).
In addition, current non-covered workers who are 10+ years away from retirement may still never receive a full Social Security benefit, not as a result of the WEP or GPO but due to possible benefit reductions that could affect all Social Security beneficiaries. On a more positive note, passage of the SSFA could provide greater legislative momentum to shore up Social Security for the long term (e.g., a bipartisan committee like the one formed during the early 1980s to propose suggested reforms).
Research Results
A 2024 study published in the Journal of Financial Planning examined the impact of including the expected value of Social Security payments as an asset, along with stocks and bonds, in efficient portfolios (i.e., portfolios that provide the maximum return for a given level of risk). Traditional efficient frontier modeling does not include Social Security, which acts as a substitute for bonds in retirees’ portfolios.
The study concluded that, given the bond-like nature of Social Security, the higher the weight of Social Security in an overall portfolio, the more risk retirees can take with the remainder of their investments consistent, of course, with their risk tolerance level. Including Social Security in a portfolio as an asset would lead to higher levels of stock up front which then decline over time for most investors.
Three (More) Things
- The SSA has been understaffed in recent years and recalculating future and retroactive benefits for 2.8 million beneficiaries will likely require significant agency resources and take some time.
- Unlike 1983, the SSA now has the ability to access beneficiaries’ public sector employment history. Some people have proposed a new WEP formula based on both covered and non-covered earnings.
- As a result of the SSFA, public employees will likely view Social Security as more equitable than before, especially widows who were penalized and lost most or all of their survivor benefits as a result of the GPO.
Six Smart Strategies
No. 1: Don’t Spend Money Before You Receive It — Avoid the temptation to spend money now in anticipation of forthcoming benefits. They could be delayed. It is currently unclear if the SSA can override the WEP and GPO with a simple line of computer code… or not.
No. 2: Review Social Security Correspondence — Review all mail that the SSA sends regarding the repeal of the WEP and GPO and your benefits in general. If something doesn’t look right, call 1-800-772-1213 or make an appointment with a local SSA field office.
No. 3: Stay Informed About Social Security — Review your Social Security benefit statement annually with a personal account on the SSA website. In addition, pay attention to Social Security information in the news and via blogs, podcasts, and webinars.
No. 4: Change Your Tax Withholding — Update your tax withholding if you will receive increased Social Security benefits as a result of the SSFA. Withholding can be done by the SSA or via quarterly estimated tax payments to the IRS.
No. 5: Prepare a Pro Forma 2025 Tax Return — Make your best estimate of 2025 income and taxes sometime during the last half of this year. Presumably, full Social Security benefits will be restored by then. Adjust tax withholding and decision-making accordingly.
No. 6: Consider Ways to Earn Social Security Credits — Determine how many Social Security credits you have already and how many are still needed to reach the minimum of 40. With outside work now “worth it” without the WEP, develop plans to earn missing credits.
In Summary
Passage of the SSFA and repeal of the WEP and GPO is good news for many in the 403bwise community and other public employees. About 40% of K-12 public school employees are not covered by Social Security. However, elation must be tempered with caution. Social Security is in trouble and it is possible the WEP and GPO could be tweaked and resurrected to once again become a factor in public employees’ retirement plans. For this reason, it is always wise to accumulate retirement savings in an IRA, 403(b) or 457 retirement savings plan, and/or taxable (brokerage) account. Don’t rely solely on a pension or Social Security.
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Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.