Big Changes to Social Security

President Biden signed the Social Security Fairness Act (SSFA) into law on January 5, 2025. This legislation repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). WEP and GPO reduced Social Security benefits—primarily for public sector workers receiving pensions from non-Social Security-covered employment.

Effective January 1, 2024, the repeal will increase monthly benefits for nearly three million government retirees, including teachers, firefighters, and police officers. The change is expected to cost the federal government $196 billion over the next ten years.

OVERVIEW OF WEP AND GPO

The Windfall Elimination Provision (WEP) has long affected how the Social Security administration calculates an eligible person’s retirement or disability benefit. If someone worked for an employer who did not withhold Social Security taxes from salary (i.e., noncovered employment), any retirement or disability pension received from that work can reduce Social Security benefits. Typically, such an employer might be a government agency.

The WEP provision affects those noncovered workers who are also otherwise eligible for Social Security benefits—having done enough covered employment to qualify. The potential reduction in Social Security benefits due to WEP is based on a relatively complex formula. The Social Security Administration’s website has a calculator.

with which a potential reduction can be estimated. GPO makes a similar reduction to spousal or survivor benefits payable to a person who had noncovered employment. In general, GPO reduces the relevant Social Security benefit by two-thirds of the government pension.

EXAMPLES OF HOW THE NEW RULES WILL INCREASE BENEFITS

Here’s an example of how the new rules will increase benefits for those previously affected by WEP. Say that Patti McCormick worked for 15 years in a human resources job in a private company. After leaving that employment, Patti later worked for 20 years in a noncovered government job that offered its own pension plan as an alternative to Social Security. Let’s also say that Patti’s potential Social Security retirement benefit from her work in the private sector—ignoring any reduction for WEP—is $1,838 per month. Finally, assume that Patti’s pension for her government job is $2,500 per month.

Making some further assumptions, and using the calculator for WEP referenced earlier, Patti’s monthly Social Security retirement benefits might be reduced to $1,282 per month due to WEP—about a $550/month reduction. As a result of the new law, Patti will collect the full amount of her retirement benefit from the Social Security administration without any reduction for WEP.

Here’s an example of how the new rules will increase benefits for those previously affected by GPO. Say that Dan Little worked for 35 years in a noncovered government job that offered its own pension plan as an alternative to Social Security. Dan never worked in the private sector.

Let’s also say that Dan’s wife Rhonda worked in a good job for 35 years in a for-profit company. Rhonda is entitled to a $4,000 per month Social Security retirement benefit at full retirement age based on her covered employment. Dan’s potential Social Security spousal benefit based on Rhonda’s work record would be $2,000 per month (half of Rhonda’s full retirement age benefit).

Finally, assume that Dan’s pension for his government job is $5,100 per month.

The GPO rule previously in effect said that Dan’s spousal benefit would be reduced by two-thirds of his government pension. Two-thirds of Dan’s government pension would be $3,400. Since that amount is higher than his potential spousal benefit, Dan would not have received any spousal benefit at all due to the GPO reduction.

As a result of the new law, Dan would be able to collect both his government pension and the $2,000 Social Security spousal benefit based on Rhonda’s record.

Taking the example of Dan and Rhonda one step further, assume Rhonda begins collecting her own Social Security retirement benefits of $4,000 per month at her full retirement age. Rhonda later passes away at a time when Dan is older than full retirement age.

As a surviving spouse, Dan is entitled to collect a Social Security survivor benefit of $4,000 per month based on Rhonda’s work record. The GPO reduction—which we calculated earlier—would have been $3,400, leaving Dan with a net survivor benefit of $600 per month.

As a result of the new law, Dan will be able to collect both his own government pension of $5,100 per month plus the full survivor benefit of $4,000 per month—$3,400 a month more than he would have collected prior to the change.

SPECIAL RULES THAT APPLIED TO WEP AND GPO

There were many rules in place that affected how—or even if—GPO or WEP applied in certain circumstances. For example, WEP did not apply to those who had 30 years or more of work covered by Social Security.

One tricky special rule involved workers who were entitled to a pension based on noncovered work but elected to take a lump-sum distribution rather than a monthly benefit. Here’s what the Social Security administration said about that:

When the entire pension is paid in a lump sum, the amount may represent a payment for a specific period of time or a “lifetime.” Generally, the pension-paying agency will prorate the lump sum to determine a monthly amount for WEP purposes. If the agency will not provide this information, prorate the lump sum to determine the monthly pension amount as follows:

Lifetime or Unspecified Period—Divide the pension lump sum amount by the appropriate actuarial value in the table that corresponds to the worker’s age on the date of the lump sum award. https://secure.ssa.gov/poms.nsf/lnx/0300605364

The net result was that when a participant in a noncovered plan elected a lump-sum distribution, the Social Security administration converted the lump sum to an equivalent monthly benefit for the purpose of figuring GPO or WEP reductions. In light of the new law, the conversion procedure will no longer be necessary because reductions for WEP and GPO will no longer be needed.

INTERIM GUIDANCE

Many clients previously affected by WEP and GPO will have questions about how the new rules will be implemented. The law became effective on January 1, 2024. It is unclear how its retroactive nature will play out.

The Social Security administration has advised its internal personnel to respond to claimants’ inquiries in this way: Please advise them that, “the Social Security Fairness act, HR 82, concerning Windfall Elimination Program and Government Pension Offset, eliminates the reduction of Social Security benefits while entitled to public pensions. At this time, the Social Security Administration is evaluating the law and how to implement it. We will provide more information on our website, ssa.gov as soon as it is available.

CONCLUSION

The repeal of WEP and GPO is a big change for those who are affected. Many government employees who have received or are entitled to pensions for noncovered work will get significantly more from Social Security at retirement than they might have been previously entitled to receive. Those anxious to know how the new rules will affect benefits to which they might have been entitled in 2024 should check the Social Security administration’s website for updates.