By J.R. Robinson, Financial Planner (February 27, 2025)
3.2 million working and retired Americans got some much deserved good news when the Social Security Fairness Act was signed into law in January (2025). The law repealed two onerous laws that previously limited certain state and local government employees from receiving Social Security retirement benefits. The Windfall Elimination Provision (WEP) was enacted in 1983 and restricted/eliminated social security benefits for certain public employees who receive a state/local pension. The Government Pension Offset Provision, which, in my opinion, was the more insidious of the two, was enacted in 1977 and reduced or eliminated Social Security spousal retirement and disability benefits for workers whose jobs were not covered by social security.
Social Security Fairness Act Repeals The WEP And GPO
The origin of the WEP/GPO Mess
The Social Security Act of 1935 originally excluded state and local government employees from Social Security coverage because of constitutional ambiguity over the federal government’s authority to impose payroll taxes on public-sector employers and because these employees were already covered by their state/local government’s pensions. Beginning in the 1950s, a series of amendments were enacted that allowed state and local governments to enroll certain categories of employees in Social Security.
Although most state and local governments adopted/conformed to Social Security, until the Social Security Fairness Act (SSFA), there were still public employees in all 50 states who were subject to WEP and GPO. In fact, 100% of state and public employees in Massachusetts, Nevada, and Ohio were non-covered (i.e., not participating in U.S. payroll tax (FICA) that is used to fund Social Security). The states with the largest numbers of non-covered employees are California, Texas, Ohio, Florida, Massachusetts, Louisiana, and Georgia. The largest employee groups impacted are public school teachers, police, and general governmental employees.
The theoretical concept behind the non-covered public employees was that the states would withhold compensation from public employees’ wages and also contribute to a fund that would provide a pension that is equivalent to what they would receive if they worked in a private sector job where payroll tax (FICA) is mandatory. If the state is providing an equivalent pension to social security and the workers are not contributing to Social Security, then it makes sense that these workers would not also receive Social Security benefits. It was this theoretical framework that led Congress to enact GPO and WEP.
The Unfairness of WEP and GPO
In practice, the two provisions proved to be patently unfair and caused financial hardship to millions of workers. First, as noted in the article link above, the state funded pensions plans have proved to be inferior to Social Security. Funding shortfalls have caused some states to reduce benefits, and many do not match Social Security’s cost of living adjustments. Additionally, spousal widow’s benefits under most state pensions are vastly inferior to Social Security, which entitles the surviving spouse to 100% of the deceased spouses’ benefits.
Further, the theoretical notion that someone who does not pay into Social Security should not receive benefits is flawed because, under Social Security, non-working spouses are entitled to 50% of their spouses benefits upon reaching FRA (after spouse claims) and 100% upon the death of the covered spouse. It seems patently unfair that the spouse of covered worker would receive full spousal benefits from being a non-working spouse, but would be shut out from spousal SS benefits if he/she worked as a teacher instead.
Conversely, most non-covered public employees have worked other jobs at some time in their carreers in which they were forced to contribute to Social Security. Under WEP and GPO, these workersreceived no benefit for these years, if they had less than 20 years of Social Security earnings.
Additionally, one important disadvantage that has gone largely un-addressed in the public discourse is that younger workers who enter public service are usually uninformed about the sacrifice in future benefits they are making. I grew up in Western Massachusetts near the border between Massachusetts and New York. My dad was a public school guidance counselor across the state line in NY. When he retired after 38 years of teaching, he received his NY state pension and social security. Had he gotten his first teaching job in MA instead, he would have only received his MA pension. I have met with many MA teachers over the years who had no idea that they had given up access to Social Security as a worker and a spouse when they went into teaching.
What the Social Security Fairness Act Means to Non-Covered Workers
While there have been many attempts to repeal WEP and GPO over the last five decades, the political stars finally aligned in 2024 for an unusual show of bipartisan support. The Act itself is fairly straightforward: It strikes out the provisions of 42 U.S.C. Sections 402 and 415 that governed the WEP and GPO, effectively repealing both measures. Additionally, it states that those amendments will apply retroactively to any benefit payments made after December 2023. Social Security recipients whose benefits were previously reduced by the WEP or GPO – as well as those who would have been impacted in the future – will now receive their full, unreduced social security benefits going forward. Additionally, Social Security recipients who received reduced benefits since January 1, 2024 will receive retroactive payments for any reduction of benefits during that time.
This means that most affected workers can expect to receive a lump sum for the 2024 payments and monthly SS checks reflecting the corrected/increased Social Security benefits in 2025. As with all such matters, the devil lies in the details. Here are some questions that were left unanswered when the law was enacted:
- Timing: When will the increased benefits begin to appear in affected recipients’ Social Security checks?
- Retroactive Payments: How will the retroactive adjustment for benefits going back to January 2024 be handled? Will it be included in monthly checks or paid in a lump sum?
- Application Process: Will the retroactive payment be paid automatically, or will recipients need to submit a separate application?
- Eligibility For New Applicants: Will applicants who never applied for spousal benefits because they would have been eliminated by the GPO be eligible for retroactive payments?
- Deceased Beneficiaries: Will retroactive payments be available for WEP- or GPO-affected Social Security recipients who have passed away since January 2024?
In the wake of the SSFA’s enactment, the SSA cautioned taxpayers that they may be waiting a year or more to receive benefits due to the complexity of the calculations and limited manpower at SSA.
Social Security Delays Retroactive Payments for Public Workers. Here’s What You Need to Know (Benzinga)
SSA Warns it may take year or more to implement SSFA (TikTok)
Despite reports of SSA call-centers being flooded with inquiries, earlier this week the SSA issued encouraging guidance that most affected non-covered workers will automatically receive the retroactive lump sum payments in 2025 and begin receiving recalculated benefits beginning in April. This should come as welcome news to taxpayers who were fretting over an application process and other potential complexities/logistics.
Social Security boost for more than 3.2 million coming in April, administrator says (CBS News)
Social Security expedites timeline for benefit increases tied to new law (CNBC)
All impacted taxpayers are encouraged to visit the SSFA information website established by the SSA at https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
Another great read comes from Michael Kitces’ Nerd’s Eye View –
John “J.R.” Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii and is a co-founder of personal finance software maker Nest Egg Guru.
